1. Mac Corp. currently has an EPS of $4, and the benchmark PE for the company is 20. Earnings are expected to grow at 5 percent per year. a. What is your estimate of the current stock price? (2 points) b. What is the target stock price in one year? (3 points)
2. Consider a project with an initial investment of $5,000, and future cash inflows of $600 per year for ten years. The IRR of the project is equal to the required rate of return. What is the NPV?
3. Johnson Inc. is considering a new fouryear expansion project that requires an initial fixed asset investment of $2.5 million. The fixed asset will be depreciated straightline to zero over its fouryear tax life, after which it will be worthless. The project is estimated to generate $2 million in annual sales, with costs of $800,000. a) If the tax rate is 35 percent, what is the OCF for this project? (3 points) b) Suppose the required return on the project is 13 percent. What is the projects NPV?