Question 1: Co. A is about to pay a dividend of $3.15 per share. Its future EPS and dividends are expected to grow with inflation, which is forecasted at 3% per year. What is the company’s stock price? The nominal cost of capital is 10%.
Question 2: Calculate the IRR for the following project
C0 = -4,000
C1 = 5,000
C2 = 6,000
C3 = -3,000
Question 3. You are the treasurer of Co. A. The company has just ordered a piece of machinery for $800,000. Of this sum, $100,000 is described by the supplier an an installation cost. You do not know whether the IRS will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company will depreciate the installation expense using the MACRS tax depreciation schedule. How will the IRS decision affect the after-tax cost of the machinery? The tax rate is 40% and the opportunity cost of capital is 10%.
Question 4: Co A has a standard deviation of 42% per year and a beta of +.10. Co. B has a standard deviation of 31% a year and a beat of +.66. Which investment is safer for a diversified investor?