Assignment:
10.1 The earning dividends, and stock price of Shelby Inc. are expected to grow at 7% per year in the future. Shelby's common stock sells for $23 per share, its last dividend was $2.00 and the company will pay a dividend of $2.14 at the end of the current year.
A Using the discounted cash flow approach, what is its cost of equity?
B If the firm's beta 1.6, the risk-free rate 9%, and the expected return on the market is 13%, then what would be the firm's cost of equity based on the CAPM approach?
C If the firm's bonds a return of 12%, then what would be your estimate of r, using the over-own-bond-yield-plus-judgmental-risk-premium approach? (Hint: Use the midpoint of the risk premium range.)
D On the basis of the results of the parts a through c, what would your estimate of Shelby's cost of equity?
A project has an initial cost of 52,125, expected net cash inflows of 12, 000 per year for 8 years and a cost of capital of 12%%. What is the project's NPV? (Hint begin by constructing a time line.)
Refer to Problem 10-1. What is the project's IRR?
Refer to Problem 10-1. What is the project MIRR?
Refer to Problem 10-1. What is the project PI?
Refer to Problem 10-1. What is the project's paycheck period?
Refer to Problem 10-1. What is the project's discounted paycheck period?
Your division is considering two investment projects, each of which requires an up-front expenditure of 15 million. You estimate that the investments will produce the following net cash flows.
Year Project A Project B
1 $5,000,000 $20,000.000
2 10,000,000 10,000.000
3 20,000.000 6,000,000
A What are the two projects net present values, assuming the cost of capital is %5?
B What are the two projects? IRRs at these same costs of capital?