1. Assume the following for a project under evaluation:
The project's life is 4 years.
The total time zero, initial cost of $55,000.
The total net operating cash flow each year is $15,000.
In addition to the terminal year operating cash flow, there is a non-operating, terminal year cash flow of $8,000.
What is the project's IRR? Accept or reject the project? Again, assume the cost of capital for a project of this risk is 7%.
7%; indifferent to accept or reject
8.4%; reject
8.4%; accept
15.75%, reject
15.75%: accept
2. Barmin's Corp. has acquired an additional company by purchasing its outstanding stock. Analysts forecast a period of 2 years of extraordinary growth (20 percent), followed by 1 year of unusual growth (10 percent), and finally a normal (sustainable) growth rate of 6.5 percent annually indefinitely. The last dividend was D0= $1.00 per share and the required return is 8.6%. What is D4 (i.e., the dividend expected at end of period 4)?
1.0000
1.286
1.584
1.687
1.440