Problem 1- Risk Adjusted NPV:
The Bingo manufacturing corp. Use a cost a capital of 15% to evaluate average risk project and its adds or subtract 3% points to evaluate projects or more or less risk. Currently two mutually exclusive project are under consideration. Both have a cost of $400,000 at will last 4 years. Project A a risker than average project, will produce a annual end cash flow average risk, will produce cash flow $150,000. project B of less than average risk, will produce cash flow of $275,00 at the end of the year 3 and 4 only. Given the information provided Bingo should accept which investment and why?
Problem 2-As the director of capital budgeting for Bingo Corporation, you are evaluating two mutually exclusive projects with net cash flow.
Cash Flow
A B
-150,000 -225.000
1) 55,000 85,000
2) 70,000 55,000
3) 70,000 65,000
4) 75,000 55,000
5) 80,000 65,000
If Bingo Corporation cost of capital is 10%, defend which project would you choose.
Problem 3-Constant Growth Stock
The last dividend paid by ABC Company was $30. , ABC's growth rate is expected to be a constant 4%, ABC required rate of return an equity (ks) 9%, what is the current price of ABC common stock?