Question #1

Talent Inc. is considering a project that has the following cash flow and WACC data.

WACC: 12%

Year                        0                              1            2                      3

Cash flows          -$1,500                  $500        $600              $700

(1) What is the project's NPV?

(2) What is the project's IRR?

(3) What is the project's Payback Period?

(4) What is the project's Discounted Payback Period?

Question #2

Part 1: Dallas Star Inc. 's stock has a 40% chance of producing a 5% return, and a 60% chance of producing a 15% return. What is the firm's expected rate of return? What is the firm's Standard Deviation? What is the firm's Coefficient of Variation?

Part 2: Calculate the required rate of return for Dallas Star Inc., assuming that (1) the nominal risk-free rate is 5%, (2) expected market return is 10% and (3) the firm has a beta of 2. (Hint: You need to find out market risk premium first.)