Question

4.         If I own 10 ITM shares and if 10 board members are to be elected, under cumulative voting I can cast a maximum of… in favor of one nominee.

5.         ITM pays a $0.90 per share dividend every quarter. For the current quarter, the holder-of-record date is Mon, May 4, 2020. What is the ex-dividend date?

Please use the following data for questions 8-12.

Year                1                   2                          3                  4            5

               $20,000            $32,000              $8,000       $2,000         $3,000  

Initial Investment is $50,000

8.         What is the project’s payback period? Will you accept the project if the required payback period is 4 years?

9.         What is the project’s fair value or present value if you require a 20% return?

10.       What is the project’s NPV? Will you accept the project?

11.       Explain why the above two techniques lead you to different decisions.

12.       What is the project’s IRR? Is the project acceptable if you require a 20% return?

Answer 1

8. Payback period = 1 + 30,000 / 32,000 = 1.9375 years.

Yes, if the required payback period is 4 years, the project should be accepted.

9. Present value of profit at 20 % return : $ 45,689

Year	Cash Flows	PV factor at 20 %	Present Values
1	$ 20,000	0.8333	$ 16,667
2	32,000	0.6944	22,221
3	8,000	0.5787	4,630
4	2,000	0.4823	965
5	3,000	0.4019	1,206
			$ 45,689

10. NPV = $ 45,689 - $ 50,000 = $ ( 4,311).

No, the project should not be accepted, as NPV is negative.

11. The payback method does not consider time value of money. Absolute cash flows are considered, and not the discount cash flows. If the present values of this project were taken into account, the project does not recover the initial investment during the life of the project. Therefore, even on using the payback method, the project should have been rejected.

On the other hand, the NPV method considers discounted cash flows for decision making, and that is the reason for the different decisions.

12. IRR: 14 %

No, the project is not acceptable because the required return of 20 % exceeds the IRR.