Question 1: Cooper Construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next ten years:
Probability Cash Flow
.15 $ 60,000
.25 85,000
.45 110,000
.15 130,000
a) What is the expected cash flow?
b) Cooper's cost of capital is 10%. What is the expected net present value?
c) Should Cooper buy the equipment?
Question 2: In January, 1994, Harold Black bought 100 shares of Country homes for $37.50 per share. He sold them in January, 2004 for a total of $9,715.02. Calculate Harold's annual rate of return.
Question 3: Maxwell Electronics had net income of $15 million last year, and had 3 million common shares outstanding. They declared a 12% stock dividend. Calculate EPS before and after the stock dividend.