1. Assume you own a portfolio of four stocks. You invested the following amounts in each of the four stocks:
McGraw-Hill: $12,000
Walmart: $5,500
General Dynamics: $10,500
Fitbit: $2,000
During the year, your stocks earned the following: McGraw-Hill 4.50%, Walmart -7.50%, General Dynamics 3.25%, and Fitbit 15.00%. What was your portfolio return during the year?
2. Tony's Hot Dog Shop has 10 million shares of common stock outstanding selling for $20 per share, 5 million of preferred stock outstanding selling for $12 per share, and a bond issue of $300 million selling for 97.5 percent of par. The cost of equity is 12 percent, the cost of preferred stock is 5 percent, and the before tax cost of debt is 9 percent. Tony has a weighted average tax rate of 40 percent. What is the weighted average cost of capital?
3. You have been asked to estimate the cash flows for an upcoming project that will last 3 years. The projected net income for the next three years are $50 million, $80 million, and $100 million, respectively. The projected depreciation will be $10 million per year for the three years. The project will require an inital outlay of $105 million for the machine and an increase in net working capital of $15 million. Assume that machine will be fully depreciated and cannot be resold. Calculate the cash flows for this project.