Assignment

You are evaluating a potential purchase of several light-duty trucks. The initial cost of the trucks will be $206,000. The trucks fall in the MACRS 5-year class that allows depreciation of 20% the first year, 32% the second year, 19% the third year, 12% the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 28,800 at the end of five years. The expected revenue associated with the trucks is $161,000 per year with annual operating costs of $84,000. The firm's marginal tax rate is 20.0%. What is the after-tax cash flow associated with the sale of the equipment?

You are considering buying common stock in Grow On, Inc. You have calculated that the firm's free cash flow was $5.20 million last year. You project that free cash flow will grow at a rate of 18.0% per year for the next three years, and then 7.0% per year thereafter. The firm currently has outstanding debt and preferred stock with a total market value of $39.43 million. The firm has 2.31 million shares of common stock outstanding. If the firm's cost of capital is 14.0%, what is the most you should pay per share for the stock now?

Grow On, Inc. is a firm that is experiencing rapid growth. The firm yesterday paid a dividend of $6.30. You believe that dividends will grow at a rate of 18% per year for years one and two, 11% per year for years three and four, and then at a rate of 5% per year thereafter. If you expect an annual rate of return of 20% on this investment, what is the most you would pay for the stock now?

You are considering buying common stock in Grow On, Inc. You have projected that the next dividend the company will pay will equal $8.20 and that dividends will grow at a rate of 8.0% per year thereafter. If you would want an annual return of 16.0% to invest in this stock, what is the most you should pay for the stock now?

Timeless Corporation issued preferred stock with a par value of $1000. The stock promised to pay an annual dividend equal to 20% of the par value. The stock is currently selling for $661.00. What discount rate is being used to value the stock?

XZYY, Inc. currently has an issue of bonds outstanding that will mature in 24 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 17% with annual coupon payments. The bond is currently selling for $813. The bonds may be called in 4 years for 120% of par value. What is your expected quoted annual rate of return if you buy the bonds and the company calls them when possible?

XZYY, Inc. currently has an issue of bonds outstanding that will mature in 22 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 10% with semi-annual coupon payments. The bond is currently selling for $1127. The bonds may be called in 4 years for 112% of par value. What is the quoted annual yield-to-maturity for these bonds?

You are considering buying bonds in ACBB, Inc. The bonds have a par value of $1,000 and mature in 26 years. The annual coupon rate is 12.0% and the coupon payments are annual. If you believe that the appropriate discount rate for the bonds is 10.0%, what is the value of the bonds to you?