1. Your firm expects to incur a ($500K) loss in year 1 and make $100K of net income in year 2 and $300K of net income in year 3. The retention ratio is projected to be 100%. The beginning equity balance on the balance sheet at the beginning of year 1 is $600K. Assuming you sell an additional $500K of stock in year 2, the equity balance at the end of year 3 would be expected to be __________.

a. $100K

b. $1,000K

c. $700K

d. $500K

2. Pet Delight specializes in gourmet pet treats. Sales estimates in millions for the next two quarters are $500 for 1Q and $600 for 2Q. All sales are made on credit. The company's beginning accounts receivable balance is $250. The company's Days in Receivables is 30 days. Cash collections from Accounts Receivables in 1Q would be estimated to be:

a. $417

b. $250

c. $750

d. $583

e. $167

3. Continuing from above, Pet Delight has a Payables period of 45 days. Purchases are expected to be 50% of next quarter's sales. The company's beginning Accounts Payable balance is $125. Using sales data from problem 2, disbursements during 1Q would be estimated to be:

a. $275

b. $425

c. $725

d. $325

e. $583

4. Using the Capital Asset Pricing Model, estimate the cost of equity for the following company. Assume rate on unsecured corporate bonds is 7%, the rate on Treasury Bills is 3%, the expected return for the overall market is 10%, and the company's beta is 2.0. The cost of equity for this company would be ________.

a. 9.0%

b. 17.0%

c. 20.0%

d. 23.0%