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problem1. Micro tech Corporation is expanding speedily, and it currently needs to retain all of its earnings, hence it doesn’t pay any dividends. But, investors expect Micro tech to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend must grow rapidly – at a rate of 40 percent per year – during Years 4 and 5. After Year 5, the company must grow at a stable rate of 8 percent per year. If the required return on the stock is 15 percent, what is the value of the stock today?

problem2. An investor purchases shares in a mutual fund for $20. At end of the year the fund distributes a dividend of 0.58. After the distribution net asset value of a share is 24.31. What is the investor's percentage return on the investment?

problem3. Vargo, Inc has a beta estimated by Value Line of 1.3. The current risk-free rate (short term) is 7.5% and the market risk premium is 8.6%. What is the cost of equity for Vargo?

problem4. Evaluate the after-tax cost of a 25 million debt issue that Pullman Mfg Corp (40% marginal tax rate (is planning to place privately with a large insurance company. This long term issue will yield 9 3/8% to the insurance company. Use 9.375% for Kd.

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