Triangular Co. will pay a dividend of $3.25 per share, today. The company will continue to pay dividends on a yearly basis, and increase its dividend by 12 percent per year for the next 5 years. After that, the expected dividend growth rate will be negative 3 percent per year forever. If the required return on Triangular stock is 8 percent,and a stock's share price is equal to the PV of all remainingdividend payments, what will a share of Triangular Co. sell for immediately before the dividend is paid? What will the price of the stock be right after the dividend is paid?

Your firm is evaluating a project, which will generate an expected revenue of $26M one year from today. The operating costs to produce the goods are expected to be $9M. The revenue and costs are expected to grow at a 2% rate, forever. The project will require investing $16M in machinery. You will have to replace this machinery every 8 years at a cost of $16M (the old machine will have no resell value). You will depreciate each machine down to a final book value of zero dollars over the life of the machine. Your firm maintains a constant debt-equity ratio of 0.20. The firm's equity beta iscurrently 1.5 and the debt is considered risk-free. The expected return of the market is 6% and the risk-free rate is 2%. The current tax rate is 0%.

a. What is the NPV of the project?

b. In a surprise move, the government has changed the tax rate to 20%. What is the new NPV of the project?

Reliable Corp. currently has expected FCFs of $60 million per year, which are expected to continue forever. The first cash flow will occur one year from today. The firm has committed to keep a constant D/E ratio of 1.5.The firm's unlevered(or asset) cost of capital (ru) is 12%. The firm's debthas a yield of 6%. The debt has a probability of default of 2% and a loss given default of 50%. The corporate tax rate is 25%.

a.What is the total value of Reliable Corp (what is the PV of Reliable Corp's FCFs)?

b. How much of thisvalue is due to the firm'sdecision to have debt in its capital structure (as opposed to being an all equity firm)?