• isk free rate: 1.75%
• expected rate of return for the market: 9.5%
• Beta of VZ: 0.88
• VZ total debt, interest and shares issued can be found in VZ financial statements
• assume market value of all debt is 100% of face(par) value.
• tax rate is 20%
• VZ stock price: $55
• initial investment: 4,500,000

• year 1 cash flow: 1,100,000
• year 2 cash flow: 1,200,000
• year 3 cash flow: 1,350,000
• year 4 cash flow: 1,550,000
• year 5 cash flow: 1,750,000

10. Price Earnings Ratio (6 points)

11. VZ currently has a 10-year bond priced at $983.21 with a 6.35% coupon paid semi-annually. VZ wants to issue a new 10-year bond at par bond with a face value of $1,000. Calculate the coupon of the new bond. (7 points)

12. VZ shares have declined significantly to 26.90. What is the required rate of return if the next dividend will be $1.38 and the projected growth rate decreases to 2.5%? (7 points)

13. VZ is considering two additional higher risk projects with a required rate of return of 12%. Based on the following cash flows which project should VZ chose and why? (7 points)

Year Project 1 cash flow Project 2 cash flow

0 -320,000 -260,000

1 115,000 35,000

2 159,000 58,000

3 132,000 249,000

14. Determine the expected return of VZ if the risk-free rate moves to 4.05%, the beta increases to 1.32, and the broad equity market is projected to return 12.72%. (7 points)

15. What is the cash cycle of VZ given this new additional information? (7 points)

Account 2018 end balance 2019 end balance

Inventory 186,000 194,000

Account receivables 42,000 45,000

Account payables 58,000 52,000

Net sales (2019 all credit) 764,000

Cost of goods sold (2019) 517,000