Problem 1: Suppose you purchased Microsoft stock (MSFT) on Jan 1, 2009 and held it for one year, selling on December 31, 2009. (a) Find realized return from each time period? (b) Split the realized return into dividend yield and capital gain yield in each time period (c) What is annual realized return? Date Price Dividend Jan 1 33.80 Feb 5 28.67 0.21 May 14 29.49 0.18 Aug 13 32.38 0.21 Nov 12 37.07 0.27 Dec 31 42.99

Problem 2: The following table shows the expected return from the investment in Stock A, Stock B and Stock C at different state of the economy. State (i) P(i) E(R)Stock A E(R)Stock B E(R)Stock C Recession 25% -15% 19% 4% Neutral 50% 14% 10% 8% Boom 25% 32% -4% 15% (a) Find the expected return, variance and SD from each stock (b) If you invest $10000 in Stock A, $ 12000 in Stock B and $15000 in Stock C, what is your total expected return from the portfolio?

Problem 3: The Sausage Hut is looking at a new sausage system with an installed cost of $187,400. This cost will be depreciated straight-line to zero over the project's four-year life, at the end of which the sausage system can be scrapped for $25,000. The sausage system will save the firm $69,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $9,000, which will be recouped at project end. If the tax rate is 34 percent and the discount rate is 12 percent, what is the NPV of this project?

Problem 4: A company is comparing two different capital structures. Plan 1 will result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247000 in debt. The interest rate on the debt is 10 percent. (a) Ignoring taxes, compare both of the plans to an all-equity plan assuming that EBIT will be $79,000. The all-equity plan would result in 15,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest? (b) What is the break-even levels of EBIT for each plan as compared to that for all-equity plan? Is one higher than the other? Why?