1. Find the payback in years (to the nearest tenths place) for the following cash flow with a WACC of 4%:
Time Period Cash Flow Cumulative Out of Pocket
0 -100 -100
1 40 -60
2 50 -10
3 20 +10
4 70 +80
2. Suppose the risk free rate is 5% and that the market risk premium is 7%. What is the required return on the (1) the market, (2) a stock with a beta of 1.0, (3) a stock with a beta of 1.7?