1. Summer Insurance company has been paying dividends that have been growing at 2% per year. Summer paid dividends of $1.60 per share. Summers current share price is $40. Using the DCF, calculate summer insurances cost of equity.
2. Enter the cash flows into the calculator and compute NPV and IRR CF0 = -110,000; C01 = 51,780; F01 = 2; C02 = 71,780 NPV; I = 20; CPT NPV = 10,648 CPT IRR = 25.8% Should we accept or reject the project?
3. Evaluate the following project, based on IRR, if the project initially costs $7000, you have an opportunity cost of 12%, and the cash flow in years 1 and 2 are each $4500. a. Accept, since IRR exceeds opportunity cost b. Reject, since opportunity cost exceeds IRR c. Accept since opportunity cost exceeds IRR d. Reject, since IRR exceeds opportunity cost
4. Alpha Industries is considering a project with an initial cost of $7.5 million. The project will produce cash inflows of $1.55 million per year for 7 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.46 percent and a cost of equity of 11.17 percent. The debt–equity ratio is .55 and the tax rate is 39 percent. What is the net present value of the project?
$263,559
$482,364
$463,811
$397,552
$417,430