Q1. The common stock of XYZ Company sells for $28.16 a share. The stock is expected to pay $1.35 per share next year when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 3 percent annually and expects to continue to do so. what is the market rate of return on this stock?
Q2. XYZ Company common stock offers an expected total return of 9.2%. The last annual dividend was $2.10 a share. Dividends increased at a constant 2.6% per year. What is the dividend yield?
Q3. XYZ company is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15% a year for the next 4 years and then decreasing the growth rate to 3.5% per year. The company just paid its annual dividend in the amount of $0.20 per share. What is the current value of one share of this stock if the required rate of return is 15.5%?
Q4. XYZ Company is preparing to pay its first dividend. It's going to pay $0.45, $0.60, an d$1 a share over the next 3 years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth to you per share if you demand a 10.8% rate of return on stocks of this type?
Q5. The preferred stock of ABC company pays an annual dividend of $7.50 and sells for $59.70 a share. What is the rate of return on this security?
Q6. Brent owns shares of ABC company's preferred stock which he says provides him with a constant 14.3% rate of return. The stock is currently priced at $45.45 a share. What is the amount of the dividend per share?
Q7. What is the net present value of a project with the following cash flows if the required rate of return is 12%?
Year Cash Flow
0 -$42,398
1 13,407
2 21,219
3 17,800
Q8. You are considering the following 2 mutually exclusive projects. The required rate of return is 14.6% for project A and 13.8% for project B. Which project should you accept and why?
Year Project A Project B
0 -$50,000 -$50,000
1 24,800 41,000
2 36,200 20,000
3 21,000 10,000
a. project A; because it has the higher required rate of return.
b. project A; because its NPV is about $4900 more than the NPV of project B.
c. project B; because it has the largest total cash inflow.
d. project B; because it has the largest cash inflow in year one.
e. project B; because it has the lower required rate of return.
Q9. XYZ company is considering a project with the following cash flows. What is the IRR of this project?
Year Cash Flow
0 -$114,600
1 35,900
2 50,800
3 45,000
Q10. You are considering an investment with the following cash flows. If the required rate of return for this investment is 15.5%, should you accept the investment based solely on the internal rate of return? Why or Why not?
Year Cash Flow
0 -$152,800
1 96,100
2 102,300
3 -4,900
a. Yes; the IRR exceeds the required return.
b. Yes; the IRR is less than the required return.
c. No; the IRR is less than the required return.
d. No; the IRR exceeds the required return.
e. You cannot apply the IRR rule in this case.
Q11. Based on the profitability index rule, should a project with the following cash flows be accepted if the discount rate is 14%? Why or Why not?
a. Yes; The PI is 0.96
b. yes; the PI is 1.04
c. Yes; the PI is 1.08
d. No; the PI is 0.96
e. No; the PI is 1.04
Q12. All of the following are related to a proposed project. Which of these should be included in the cash flow at time zero?
I. purchase of $1400 of parts inventory needed to support the project.
II. loan of $125,000 used to finance the project.
III. depreciation tax shield of $1,100.
IV. $6500 of equipment needed to commence the project.
a. I and II only
b. I and IV only
c. II and IV only
d. I, II, and IV only
e. I, II, III, and IV
Q13. ABC purchased a lot in New York City 6 years ago at a cost of $280,000. Today that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.47 million. What amount should be used as the initial cash flow for this project?
a. -$1,470,000
b. -$1,810,000
c. -$1,825,000
d. -$1,845,000
e. -$1,860,000
Q14. XYZ sells customized clothing. Currently, it sells 18,000 shirts at an average price of $89/ea. It's considering adding a lower-priced line of shirts that sell for $59/ea. XYZ estimates it can sell 7,000 of the lower-priced shirts but will sell 3,000 less of the higher-priced shirts by doing so. What is the amount of the sales that should be used when evaluating the addition of the lower-priced shirt?
a. $146,000
b. $275,000
c. $413,000
d. $623,000
e. $680,000
Q15. ABC company is evaluating a project that will increase annual sales by $138,000 and annual costs by $94,000. The project will initially require $110,000 in fixed assets that will be depreciated straight-line to a zero book value over the 4-year life of the project. The applicable tax rate is 32%. What is the operating cash flow for this project>
a. $11,220
b. $29,920
c. $38,720
d. $46,480
e. $46,620