2. You are looking at a new project that costs $185,000 today and you have estimated the following expected cash flows:

Year 1: $75,000

Year 2: $88,400

Year 3: $90,300

Year 4: $112,800

Compute the Net Present Value (NPV) using the discount rate of 16% and comment as to whether you would recommend the project.

3. A project requiring an initial outlay of $175,000 today is promising to produce a return of $427,300 in seven years time. Use the Internal Rate of Return (IRR) method to decide whether this investment is worthwhile if the prevailing market rate is 14.50% compounded annually.

4. Current forecasts for Blues Limited is to pay dividends over the next four years, as follows:

Year	1	2	3	4
Dividends	$1.20	$1.36	$1.52	$1.63

At the end of four years you anticipate selling the stock at a market price of $16.47.

Required:

a) Using the dividend valuation model, compute the current price of the stock given a 15% discount rate.

b) Suppose that Blues Limited shares is currently trading at $11.50 would you buy the stock? Provide your reasoning.

5. The share price of Mars is currently $4.55 per share and the last dividend was $0.40 per share. The analyst is predicting an annual dividend growth rate of 5% and the required rate of return is 16%.

Required:

a) Compute the share price using the Gordon Growth model.

b) Comment on whether you would invest in the share.