Question 1. Wheel Industries is considering a three year expansion project.
The project requires an initial investment of $1.5 million. The project will use straight line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million and has costs of $600,000.
The tax rate is 35%. Calculate the cash flows for the project. If the discount rate is 6% calculate the NPV of the project.
Question 2. Clinton Co. has just paid a dividend of $2.50 per share. The dividends are expected to grow at a constant rate of 6% per year for ever. If the stock is currently selling for $50 per share, calculate the cost of equity for the firm.