Magic Drug Company is expected to have rapid growth. The dividend for a share of Magic's stock a year from today is expected to be $2. During the next two years (year 2 and year 3), the dividend is expected to grow at 10 percent per year (g1=10%). After year 3, the growth rate (g2) will be equal to 12 percent per year. What is the present value of a share of stock if the required return is 15 percent?

Guthrie Enterprises needs someone to supply it with 145,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $3 million to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. The market value of the retired machine is $500,000. Your production costs will be $1,955,000 per year. You also need an initial investment in net working capital of $325,000, which will be fully recovered at the end of the project. If your tax rate is 20 percent and you require a 10 percent return on your investment, what bid price should you submit?

Wellington Crab Inc. wants to buy a new product line. The new project can potentially increase annual sales by $322,000 and expenses by $220,000. The project will require $240,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 8-year life of the project. The company has a marginal tax rate of 40 percent. What is the depreciation tax shield at the end of year 1?

John is 20 years old now (t=0). He wants to retire on his 50^th birthday (t=30) with $1 million on his retirement account. To achieve this goal, John decides to make annual payments to his retirement account starting from his 21^st birthday (t=1) so that the account would have $1,000,000 on his 50^th birthday (t=30) after his last payment on the day. The retirement account is expected to deliver a 10% annual return.

1. What is John's annual payment to his retirement account if his annual payment is a fixed amount of dollars?
2. What is John's first payment to his retirement account if his annual payment grows 3% per year?

Jurassic Toys just paid a dividend of $4 per share because of the strong sales figure in the last year. Stock analysts expect that strong sales will continue. They forecast that the dividend growth rate for the next few years will be 3.5 percent based on a retention ratio of 0.7. What is the value of ROE used in the analysis?

Och, Inc., is considering a project that will result in initial pretax cash savings of $2 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. The company has a target debtvalue ratio of 0.6, a cost of equity of 11 percent, and a pretax cost of debt of 5 percent. The tax rate is 30%. What is the NPV of this cost-saving project?

Which of the following statement on the firm's net working capital is incorrect?

	A.	Holding other things constant, a decrease in accounts receivable can increase a firm's cash flow from assets.
	B.	Holding other things constant, an increase in cash can increase a firm's cash flow from assets.
	C.	Holding other things constant, a decrease in accounts payable can decrease a firm's cash flow from assets.
	D.	Holding other things constant, an increase in inventory can decrease a firm's cash flow from assets.