1. A stock just paid a dividend of D₀ = $0.66. Dividend is expected to grow at a constant rate of 3.2%. The required rate of return is 15.7%. What is the current stock price?

2. XYZ stock is currently selling for $40.35 per share. The company just paid its first annual dividend of $4.08 a share. The firm plans to increase the dividend by 7 percent per year indefinitely. What is the expected return on XYZ stock?

The company is evaluating new equipment that will cost $2,000,000. The equipment is in the MACRS 3-year class and will be sold after 3 years for $150,000. Use of the equipment will increase net working capital by 200,000.    The equipment will save $850,000 in operating costs each year for 3 years. The company's tax rate is 25 percent and its cost of capital is 12%. Please show formulas in Excel.

Marcus Company, is a successful start up business, but needs additional funding of $500,000 to fund continued growth. Currently the company is worth $1,500,000.   An angel investor is willing to invest the full $1,500,000. The owner of the company currently owns all 100,000 shares in her business

a. Calculate the fair price per share

b. How many additional shares must be sold to the angel investor?

c. What proportion of the company will the angel investor own?

d. What are 3 reasons that explain why the owner of the company wants to raise new equity capital?

e. What are 3 reasons that explain why the owner might consider raising new capital through debt rather than equity?

Which of the following statements regarding the business purpose concept is true?

a.The only test for deductibility vis-a-vis the business purpose concept is that an expenditure must directly create profit.

b.The dominant motive for incurring a business expense need not be to earn a profit independent of any tax savings.

c.If the secondary purpose of a transaction is tax savings, it will not be allowed as a deduction.

d.To be deductible, the business purpose concept requires an expenditure to have a bona fide business reason other than tax avoidance. If the sole purpose of a transaction is tax savings, it will not be allowed as a deduction.

Discuss the major types of insurance marketing systems and highlight the differences between them.

Consider two mutually exclusive new product launch projects that Nagano Gold is considering. Assume the discount rate for both products is 17 percent.

Project A: Nagano NP-30

Professional clubs that will take an initial investment of $616,000 at Year 0. For each of the next 5 years, (Years 1-5), sales will generate a consistent cash flow of $245,000 per year. Introduction of new product at Year 6 will terminate further cash flows from this project.

Project B: Nagano NX-20.

High-end amateur clubs that will take an initial investment of $530,000 at Year 0. Cash flow at Year 1 is $160,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at Year 6 will terminate further cash flows from this project.

Year NP-30 NX-20

0 -$610,000   -$530,000

1 245,000 160,000

2 245,000 176,000

3 245,000 193,600

4 245,000 212,960

5 245,000 234,256

Complete the following table: ( Do not round intermediate calculations. Round your "PI" answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16. Enter your IRR answers as a percent.)

NP-30 NX-20

Payback __________ years _________ years

IRR __________ % _________%

PI ___________ ___________

NPV ___________ ___________

Discuss a very brief distinction between capitalism and socialism. Then state which you think is to be preferrred above the other, though not necessarily in every respect. Be sure to tell why you think the way you do.

Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,190,000 and will last for six years. Variable costs are 35 percent of sales and fixed costs are $330,000 per year. Machine B costs $5,429,000 and will last for nine years. Variable costs for this machine are 30 percent of sales and fixed costs are $230,000 per year. The sales for each machine will be $12.2 million per year. The required return is 11 percent and the tax rate is 22 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Compare the valuation ratios across the two firms. How do you interpret the difference between them?

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.45 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,795,000 in annual sales, with costs of $705,000. The project requires an initial investment in net working capital of $420,000, and the fixed asset will have a market value of $435,000 at the end of the project. a. If the tax rate is 22 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 9 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Arlington Corporation's financial statements (dollars and shares are in millions) are provided here.

Enter your answers in millions. For example, an answer of $25,000,000,000 should be entered as 25,000. Round your answers to the nearest whole number, if necessary.

1. What was Arlington's 2019 free cash flow?

   $    million

2. Construct Arlington's 2019 statement of stockholders' equity.

   Statement of Stockholders' Equity, 2019
   	Common Stock		Retained Earnings	Total Stockholders' Equity
   	Shares	Amount
   Balances, 12/31/18	million	$    million	$    million	$    million
   2019 Net Income			million
   Cash Dividends			million
   Addition to retained earnings				million
   Balances, 12/31/19	million	$    million	$    million	$    million

3. What was Arlington's 2019 EVA? Assume that its after-tax cost of capital is 10%. Round your answer to the nearest cent.

   $    million

4. What was Arlington's MVA at year-end 2019? Assume that its stock price at December 31, 2019 was $25. Round your answer to the nearest cent.

   $    million

Explain the multistage valuation model when applied to FCF and dividends. Also show the equation used for each

.

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a 4-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a 6-year life, and requires $115,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 11 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Which conveyor belt system should the firm choose? System A System B

A proposed cost-saving device has an installed cost of $675,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $85,000, the marginal tax rate is 21 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $68,000. What level of pretax cost savings do we require for this project to be profitable? MACRS schedule. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV to zero and solve for the variable in question. Guthrie Enterprises needs someone to supply it with 158,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $1,980,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $168,000. Your fixed production costs will be $283,000 per year, and your variable production costs should be $11.20 per carton. You also need an initial investment in net working capital of $148,000. The tax rate is 23 percent and you require a return of 12 percent on your investment. Assume that the price per carton is $17.80. a. Calculate the project NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the minimum number of cartons per year that can be supplied and still break even? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What is the highest fixed costs that could be incurred and still break even? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)