X denotes the field that needs to be answered.

You’ve collected the following information from your favorite financial website.

52-Week Price Stock (Cur div)

Hi Lo Div Yld % PE Ratio Close Price Net Chg

77.40 10.43 Palm Coal .36 2.6 6 13.90 –.24

55.81 33.42 Lake Lead Grp 1.54 3.8 10 40.43 –.01

130.95 69.60 SIR 2.10 2.4 10 88.99 3.07

50.24 13.95 DR Dime .80 5.2 6 15.43 –.26

35.00 20.74 Candy Galore .32 1.5 28 ?? .18

According to your research, the growth rate in dividends for SIR for the next five years is expected to be 20.5 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.5 percent indefinitely. Assume investors require a return of 13 percent on SIR stock.

According to the dividend growth model, what should the stock price be today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current stock price $

You’ve collected the following information from your favorite financial website.

Using the dividend yield, calculate the closing price for Candy Galore on this day. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Stock price            $

Assume the actual closing price for Candy Galore was $21.69. Your research projects a 4.25 percent dividend growth rate for Candy Galore. What is the required return for the stock using the dividend discount model and the actual stock price? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Required return             %

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.90, $16.90, $21.90, and $3.70. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends, forever.

If the required return on the stock is 10 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Current share price            $

(EAC) Brandy's Place has decided to purchase a new branding machine. Brandy will buy one of two machines. Each machine costs $1,500. Machine A has a four-year life, a salvage value of $1,000, and expenses of $475 per year. Machine B has a five-year life, a salvage value of $500, and expenses of $460 per year. Whichever machine is used, revenues for this project are $1,200 per year, and machines will be replaced at the end of their lives. Using straight-line depreciation to the salvage value, a tax rate of 35%, and a cost of capital of 20%, which machine should Brandy buy, and why?

You receive an annuity immediate for 20 years, where for the first 10 years, payments are 1000 and then starting at the end of the 11th year increase by 10% (so the payment at the end of the 11th year is 1100. Find the accumulated value of the annuity if effective annual interest i = 7%.

4. Calculating interest rates

The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next two years and 5% thereafter.

The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security's maturity. The liquidity premium (LP) on all National Transmissions Corp.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):

National Transmissions Corp. issues fourteen-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average.

10.59%

5.45%

10.04%

9.29%

Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?

A AAA-rated bond has less default risk than a BB-rated bond.

The yield on U.S. Treasury securities always remains static.

Tre-Bien, Inc., is a fast-growing technology company. The firm projects a rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, the firm expects a constant growth rate of 8 percent. The firm expects to pay its first dividend of $2.45 a year from now. If the required rate of return on stocks with similar risk is 22 percent, what is the current price of the stock? Please show formulas to obtain answers on each part.

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $15.6 million. The equipment will be depreciated straight line over 6 years, but, in fact, it can be sold after 6 years for $584,000. The firm believes that working capital at each date must be maintained at a level of 20% of next year’s forecast sales. The firm estimates production costs equal to $5.50 per trap and believes that the traps can be sold for $12 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm’s tax bracket is 40%, and the required rate of return on the project is 12%

Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps)

0.00 0.58 0.83 1.00 1.00 0.52 0.20 0

What is project NPV? (round to 3 decimals)

DEPRECIATION METHODS

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $375,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The company's WACC is 10%, and its tax rate is 40%.

1. What would the depreciation expense be each year under each method? Round your answers to the nearest cent.
   

   Year	Scenario 1 (Straight-Line)	Scenario 2 (MACRS)
   1	$	$
   2
   3
   4

2. Which depreciation method would produce the higher NPV?
   -Select-Straight-LineMACRSItem 9
   
   How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations.
   $

Florida Farms (FFC) is considering producing a new fruit juice, Elite. FFC has spent two years developing this product. FFC has also test-marketed Elite, spending a token sum to conduct consumer surveys and tests of the product in 30 states.

Based on the previous fruit juice products and the results in the test marketing, management believes consumers will buy 4 million packages each year for five years at 50 cents per package, Equipment to produce Elite will cost FFC $500,000, and $150,000 of additional net working capital will be required to support Elite sales. FFC expects production costs to average 30% of Elite's net revenues, with fixed overheads & sales expenses totaling $262,000 per year. The equipment has a life of five years after which time it will have no salvage value. Working capital is assumed to be fully recovered at the end of five years. Depreciation is straight-line (no salvage) and FFC 's tax rate is 45%. The required rate of return for a similar risk is 8%.

Should Florida Farms produce this new fruit drink? Apply the NPV method as the basis of your analysis and recommendation.

Riskfree rate 0.03                   

Market rate 0.11

You have three stocks in your portfolio: Applied Materials, Texas Instruments, and Qualcomm. Use their information in the chart below to answer the questions.

1. What is each stock’s dividend yield?

2. What is each stock’s capital gain return?

3. What is each stock’s holding period return

4. Using the holding period returns and the data above, calculate your expected return on your portfolio.

5. What is each stock’s required return?

6. Using the required returns as the means, what is virtually the entire range of returns for each stock?-just need help understanding this question

Suppose you bought a PUT option on a share of Tesla stock (Strike Price $200, Expiration Date 11/1/2019) today for a price of $4.99. On the expiration date, the price of a share of Tesla is $300. Answer the following questions.

1. Will you exercise the put option?
2. What is your Payoff?
3. What is your Profit/Loss?