1. Consider stock price and intrinsic value. Are they different? When is one value more relevant than the other? (In valuing a business)

2. If the risk-free rate is 2% and the MRP is 7%, according to CAPM, a stock that is three-quarters as risky as the market would have an expected return of _____?

3. Massey Machine Shop is considering a four-year project to improve its production efficiency. Part of th eproject will require an engineering study. It is estimated that such a study will cost $25,000. Buying a new machine press for $450,000 is estimated to result in $120,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $85,000. At time 0, the press also requires an additional investment in inventory of $6,000, and an increase in account receivables of $2000. Account payables will increase by $3000. Everything in current assets and current liabilities remain the same. If the company’s tax rate is 35% and its WACC is 12%, should the company accept the project? The MACRS schedule is as follows:

Year: 5-Year class:

1 20%

2 32%

3 19.2%

4 11.52%

5 11.52%

6 5.76%