1. ABC Corporation is selling an IPO of stock. They expect to pay the new shares equivalent of $4 dividend per share and expect the stock to be priced at $50 in three years. The market required rate of return is estimated to be 20%. What is value of the stock today?
A. $24.64
B. $37.36
C. $45.72
D. $50.00
2. The Webmatics has approved a project for 5 years ago and the project still has 15 years of remaining life today. If the old equipment is replaced with the new equipment, the operating expenses will decrease by $3 million, since the new equipment is energy-efficient. The old equipment was purchased 5 years ago at a cost of $38 million and was assumed to have no value at the end of its 20 year life. The old equipment can be sold for $12 million today. The new equipment is $32 million and was assumed to have no value at the end of the project. The firm uses straight line depreciation. The marginal tax rate is 25%. If the firm replaces the old equipment now, free cash flow for next year will
A) increase by $2.13 million
B) decrease by $2.40 million
C) Increase by $2.49 million
D) decrease by $2.22 million
E) increase by $2.31 million