Problem 1) This company pays a perpetual annual dividend of 2.5% of its par value. Par value is $100 per share. If investors require rate of return on this stock is 15%, what is the value of per share?
Problem 2) your company is considering an investment in a project which would require an initial outlay of $300,000 and produce expected cash flows in years 1-5 of $87,385 per year. You have determined that the current after tax cost of the firm's capital for each source of financing is as follows:
cost of debt: 8%
cost of preferred stock: 12%
cost of common stock: 16%
long term debt currently makes 20% of the capital structure, preferred stock 10%, and common stock 70%. what is the net present value of this project?