Question 1: The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?
Question 2: What is the net present value of a project with the following cash flows if the required rate of return is 12 percent?
Year Cash Flow
0 -42,398
1 13,407
2 21,219
3 17,800