Hi, I need help with the following 10 questions. Thanks!

1. Gogo stock is currently selling for $30.00 per share.The dividend next period (DIV₁) is expected to be $3.00 per share and it is expected to grow at the rate (g) of 2 percent in perpetuity.Given this information, what is the expected price of Gogo stock 10 years fromtoday?

A) $30.00

B) $36.00

C) $36.57

D) $38.14

E) Cannot answer this question without knowing what the market capitalization rate (r) is.

2. You would like to have $2 million when you retire 25 years from today.What level/constant amount would have to invest at the end ofeach of the next 25 years to achieve that goal if the annual interest rate is 6%?

A) $156,453

B) $80,000

C) $43,322

D) $36,453

E) $32,398

3. An investment earns the following rates of the return over a four-year period:

Year 1:5%

Year 2:10%

Year 3:-10%

Year 4:10%

What annuallycompoundedrate of return did this investment earn?

A) 3.28%

B) 3.41%

C) 3.59%

D) 3.75%

4. An all equity firm is expected to have earnings per share in perpetuity of $6.00.The current price is $50.00 per share, which implies the equity capitalization rate (r_E)is 12 percent.Suppose the firm issues debt and uses the proceeds to buy back stock so that expected earnings per share increase to $8.00 in perpetuity.Assuming a world where Modigliani-Miller Proposition I holds, what is (a) thenew share priceand (b) thenew equity capitalization rate(r_E)?

The new share price is __________

The new equity capitalization rate is _________

5.RichardResourcesInc. (RRI) has an estimated beta of 1.5.Currently, the short-term treasury interest rate is 0.8% per year.Historically, returns to a broadly diversified portfolio of stock market investments have averaged 10.6% per year, and short term treasury interest rates have averaged 3.4% per year.Based on a survey of investment management professionals, the expected return to the broadly diversified market over the next several years is 6.8% per year.

(a) What estimate of the market risk premium is supported by the historical evidence?

(b) What estimate of the market risk premium is supported by investment management survey?

(c) Relying on the CAPM, and the investment management survey, what is the expected rate of return on RRI common stock?

6. Hartman Resources Corporation (HRC)is in financial distress.It recently sold off its tangible assets because it could not operate its business profitably.HRC'sonly remaining asset is $1 million in cash.Unfortunately, HRC previously issued zero coupon bonds with a face value of $2 million.

(a) If HRC were to be liquidated immediately, what would be the amounts paid to the bondholders and to the stockholders, respectively?

Amount paid to bondholders: $_______

Amount paid to stockholders: $________

(b) HRC'smanagers (who are also the stockholders) are considering using the $1 million in cash to fund a risky investment.In exchange for investing the $1 million, HRC would immediately receive either $1.8million or $0, with equal probability.What is the NPV of this proposed investment?(Use a zero discount rate).

The NPV is equal to: _______

(c) Assume that HRC commits to making this investment, but that the outcome is not yet known.HRC would be liquidated as soon as the outcome was known.What is the market value now of HRC's stock and of its bonds?(Continue to use a zero discount rate).

Market value of HRC's stock:$_________

Market value of HRC's bonds:$___________

(d) Explain the principle illustrated by this questionhere:

7. Hula Hoop Inc (HHI)is considering whether to purchase a new hula hoop-producing machine at a cost of $1,200,000.The machine would produce 100,000 hula hoops per year during its useful life of three years, and would be depreciated for tax purposes at a rate of $400,000 per year. No salvage value is expected.Currently, hula hoops can be sold for$15 each.The materials and labor required to produce a hula hoopcurrentlycost $9.The inflation rate is expected to be 2% per year, and the prices ofbothhula hoops and hula hoop inputs are expected to increase at the inflation rate. The tax rate is 34%.

(a)Given the risk associated with producingfor the hula hoop market, HHI management believes that a 5%realdiscount rate is appropriate.Whatnominaldiscount rate should be used?

(b) Compute the net incrementalnominalpost-tax cash flows resulting from the purchase of the hula hoop machine on a year-by-year basis for years 1, 2,and 3 (i.e.,t= 1, 2, and 3).You can assume that the initial investment of $1,200,000 is made today (t= 0).

Year 1: _______

Year 2: ________

Year 3: ________

(c)Compute the NPV of the hula hoopmachine.

Identify whether each of the following would increase or decrease the NPV of the hula hoop machine, and briefly explain why - no computations are required:

(d) An increase in the real discount rate.

(e) An increase in the projected inflation rate.

(f) A revised forecast where hula hooppricesincrease at a slower rate than the general inflation rate.

8.You have two potential investment projects, Project A and Project B. You can take one, but not both. The annual cash flows for the two projects are:

Year0123

Project A Cash Flow:-$50,000$45,000$5,000$5,000

Project B Cash Flow:-$50,000$5,000$5,000$50,000

(a) Compute the IRR for each project:(Show results to two digits.)

IRR ofA _______percent

IRR of B________percent

(b) Computethe NPV for each project if the appropriate discount rate is 5%.

NPV of A$_______

NPV of B $_________

Which project would you take, and why?

(c) Computethe NPV for each project if the appropriate discount rate is10%.

NPV of A$_____

NPV of B$ ______

Which project would you take, and why?

(d)Summarize the principles demonstrated by this problem.

9. Phil Brake, an aspiring young accountant, says at the weekly management meeting: "I don't think putting all these restrictive covenants in our next bond issue is such a good idea.After all, we can't make ourselves better off by restricting our choices, can we?"The President of the company asks for your opinion.What do you say?

10.Anall-equity firm's stockholders currently require a 10 percent return on their investment.One of the directors of the company suggests that the firmcan lower its weighted average cost of capital by issuing debt since bondholders are only expected to require a 4 percent return.This implies that thevalue of the firm will increase, the director argues, becausethe "hurdle rate" on new investment will be lower.Comment on the director's arguments.