PART I: NPV of stock market value growth You are considering buying $32,000 worth of Stock A or $88,000 worth of Stock B (mutually exclusive). You can only buy one stock in this problem. Your plan is to hold the stock for five (5) years and then sell. Your cost of capital (discount rate) is 4.65%. Stock A: Sells today for $64 per share and has typically increased in market value year over year at an annual rate of 8%. This company does not declare dividends. Stock B: Sells today for $88 per share and has typically increased in market value year over year at an annual rate of 7%. This company has declared quarterly dividends on a consistent basis since 1920. Complete the table below relevant to anticipated growth of the stocks market value after five years. Ignore the dividend variable for Stock B for now. STOCK A STOCK B Internal Rate of Return NPV of Stock growth Profitability Index (PI)

PART II: Stock B Dividend Analysis What does the average quarterly dividend per share have to be for Stock B to make the PI equal to Stock A.

Time Value application to Stock purchase problem (25 points). Graded Problem Set Student Name: PART I: NPV of stock market value growth You are considering buying $32,000 worth of Stock A or $88,000 worth of Stock B (mutually exclusive). You can only buy one stock in this problem. Your plan is to hold the stock for five (5) years and then sell. Your cost of capital (discount rate) is 4.65%. Stock A: Sells today for $64 per share and has typically increased in market value year over year at an annual rate of 8%. This company does not declare dividends. Stock B: Sells today for $88 per share and has typically increased in market value year over year at an annual rate of 7%. This company has declared quarterly dividends on a consistent basis since 1920. Complete the table below relevant to anticipated growth of the stocks market value after five years. Ignore the dividend variable for Stock B for now. STOCK A STOCK B Internal Rate of Return NPV of Stock growth Profitability Index (PI) PART lI: Stock B Dividend Analysis What does the average quarterly dividend per share have to be for Stock B to make the Pl equal to Stock A