Q1.MB Rowing inc is evaluating a new project at t=0. Assume the following: Current EPS ( earning per share) is $10.00 The company currently pay out all earning as dividend The company has just paid the dividend NED had a new project that requires a per share investment of $1.95 at t=1 The new project last two years The expected increase in earning is $2.75 at t=2 and $3.25 at t=3 Investors requires a return of 14% There are no taxes Assume earnings noted above equal cash flow. If MB Rowing inc, announces it will undertake the investment, what is the new value ( price) per share at t=0.

Q2.A start up company, VLED inc, evaluate the following new business venture:

• Forecasted sales are 315 bottles of energy drink sold per year in perpetuity

• At t=1 each energy drink sells for $1.25 in real term

• The real price of each energy drink then increase at a rte of 8%

• At t=1 each energy drink costs $0.90 in real term

• The real cost of each energy drink then increase at a rate of 6%

• The real discount rate is 10%

• The applicable tax rate is 34%

• There are no working capital or capital spending requirements

• The only business VLED, inc, participate in is the energy drink under evaluation

• What is VLED, Inc worth today?

Q3.

GM Cat Emporium has an outstanding perpetual bond with a 10% coupon rate that can be called in one year. In addition,

• The bond makes annual coupon payment

• Par value is $1000

• The call premium is $150 above par value

• In one yeat there is

  • A 55% probability the interest rate is 14% and

  • A 45% probability the interest rate is 7%

• The current interest rate is 10%

• Once the interest rate change is revealed at t=1, the interest rate remains fixed forever.

• What is the current market price of the bond?