WeTechies Limited earnings and dividends are expected to grow at a rate of 15% per year during the next two years, at 10% per year in the 3rd and 4th years, no growth in 5th year and then decline at thrate of 2% per year forever. Currently WeTechies stock is trading at $28.50 and the investors require 12% rate of return.
a. Calculate D0 and D1.
a. Calculate P4 and P5.
b. If you buy WeTechies stock 4 years from today, and sell it after keeping for one year, what will your dividend yield, capital gains yield, and total yield be?


QUESTION 2:
Comfort Plus is building a factory that can make 10,000 massage chairs per year for 5 years. The factory will cost $10,000,000. In year 1 Comfort Plus will sell chairs for $1,020 each in nominal terms. The price will rise at 3% each year in real terms. During the first year, variable cost will be $408 in nominal terms and will rise by 2% per year in real terms. ComfortPlus will depreciate the factory at a CCA rate of 20%. ComfortPlus will sell the factory for $2,208,162 in nominal terms (or $2,000,000 in real terms) at the end of year 5. The nominal discount rate is 15%. The rate of inflation is 2%. Cash flows except the initial investment occur at the end of the year. The corporate tax rate is 40%. What is the NPV of this project?


QUESTION 3:
ABC Technologies is considering the following three machines to make widgets.
1. Machine X costs $1,000,000, has 6 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $400,000 (excluding CCATS) per year.
2. Machine Y costs $2,000,000, has 10 year economic life and a salvage value of $100,000. It will generate before tax cash flow of $600,000 (excluding CCATS) per year.
3. Machine Z costs $3,000,000, has 12 year economic life and a salvage value of $200,000. It will generate before tax cash flow of $790,000 (excluding CCATS) per year
Whichever machine ABC purchases, it will keep repurchasing it forever. CCA rate is 30%, the corporate tax rate is 40% and the required rate of return is 15%.

Which of the three machines ABC Technologies should purchase?