Question 1: A stock that currently trades for $40 per share is expected to pay a year-end dividend of $2 per share. The dividend is expected to grow at a constant rate over time. The stock has a beta of 1.2, the risk-free rate is 5%, and the market risk premium is 5%. What is the stock’s expected price seven years from today?
Question 2: Maxvill Motors has annual sales of $15,000. Its variable costs equal 60% of its sales, and its fixed costs equal $1,000. If the company’s sales increase 10%, what will be the percentage increase in the company’s earnings before interest and taxes (EBIT)?
Question 3: S. Claus & Co. is planning a zero coupon bond issue that has a par value of $1,000 and matures in 2 years. The bonds will be sold today at a price of $826.45. If the firm’s marginal tax rate is 40%, what is the annual after-tax cost of debt to the company on this issue?