1. Suppose a firm has an ROE of 6%, and it pays out to shareholders one third of the profits it generates and retains the rest. What is the firm's maximum sustainable growth rate?

2. A bond has 7 years left, paying annually. Its coupon pays $12. Rates dropped 25 bips since issue. What is the value of this bond now?

3. CFO of Cicero Industries plans to calculate a new project's NPV by estimating the relevant cash flows for each year of the project's life (i.e., the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the company's overall WACC. Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows?

All sunk costs that have been incurred relating to the project.

All interest expenses on debt used to help finance the project

The investment in working capital required to operate the project, even if that investment will be recovered at the end of the project's life.

Sunk costs that have been incurred relating to the project, but only if those costs were incurred prior to the current year.