1) What is the maximum price you would pay for a common stock given that the risk free rate of return is 4%, the current dividend is $6.00, the return on the average stock in the market is 11%, the growth rate in dividends for the stock is 4% per year, and the beta for the stock is 1.3?

2) You are evaluating a project that requires an initial investment of $225,000 and has equal annual cash inflows of $85,000 each year for the next five years. What is the payback period?

3) What is the maximum price you would pay for the following preferred stocks given that your required rate of return on preferred stock is 7%? 

A. CCA Inc. pays dividends of $8 annually and has a par value of $100.

B. NCE Inc. pays dividends of $8 annually and has a par value of $100 with a mandatory retirement after 20 years.

4) Use the data in the following table to compute the percentage change in EBIT that would occur if sales were to increase by10%. (10 points)

Sales                       $7,000

Less Variable cost   $1,000

Less Fixed cost       $3,000

EBIT                        $3,000

Less interest             $1,000

Profit before tax        $2,000

Less tax                         $800

Net Profit                  $1,200