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linda_us, Master's Degree

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Experience: Business Analyst and Solution Consultant with over 9 years of experience.

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1. Fresno Corp. is a fast-growing company that expects to grow

Resolved Question:

1. Fresno Corp. is a fast-growing company that expects to grow at a rate of 26 percent over the next two years and then to slow to a growth rate of 16 percent for the following three years. If the last dividend paid by the company was $2.15. What is the dividend for 1st year? Round answer to 3 decimal places, e.g. 15.250.) What is the dividend for 2nd year? Round answer to 3 decimal places, e.g. 15.250.) What is the dividend for 3rd year? Round answer to 3 decimal places, e.g. 15.250.) What is the dividend for 4th year? Round answer to 3 decimal places, e.g. 15.250.) Compute the present value of these dividends if the required rate of return is 14 percent. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) Present value

2. Nynet, Inc., paid a dividend of $4.21 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 14.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.25.) 3. Knight Supply Corp. has not grown for the past several years and management expects this lack of growth to continue. The firm last paid a dividend of $3.89. If you require a rate of return of 16.5 percent, what is the current value of this stock to you? (Round answer to 2 decimal places, e.g. 15.25.) 4. Ron Santana is interested in buying the stock of First National Bank. While the bank expects no growth in the near future, Ron is attracted by the dividend income. Last year the bank paid a dividend of $6.14. If Ron requires a return of 16.5 percent on such stocks, what is the maximum price he should be willing to pay for a share of the bank’s stock? (Round answer to 2 decimal places, e.g. 15.25.) 5. The current stock price of Largent, Inc., is $47.41. If the required rate of return is 22 percent, what is the dividend paid by this firm if the dividend is not expected to grow in the future? (Round answer to 2 decimal places, e.g. 15.25.) 6. Proxicam, Inc., is expected to grow at a constant rate of 7.00 percent. If the company’s next dividend, which will be paid in a year, is $1.83 and its current stock price is $22.35, what is the required rate of return on this stock? (Round intermediate calculations to 4 decimal places, e.g. 1.5325 and final answer to 2 decimal places, e.g. 17.54%.) 7. X-Centric Energy Company has issued perpetual preferred stock with a stated (par) value of $100 and a dividend of 5.5 percent. If the required rate of return is 11.25 percent, what is the stock's current market price? (Round answer to 2 decimal places, e.g. 15.25.) 8. Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,763 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

9. Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for project. Year Cash Flow 0 -$3,181,860 1 $916,079 2 $941,004 3 $1,182,671 4 $1,164,497 5 $1,504,746

What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) The NPV is

Should management go ahead with the project? Which project?

10. Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems. (Enter negative amounts using negative sign, e.g. -45.25. Round answers to 2 decimal places, e.g. 15.25.) Year System 1 System 2 0 -$14,400 -$44,100 1 14,400 33,900 2 14,400 33,900 3 14,400 33,900

Calculate NPV. NPV of System 1 is $ and NPV of System 2 is $ .

Which system should the firm invest? The firm should invest in .

11. Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems. Year System 1 System 2 0 -$13,100 -$45,900 1 13,100 34,400 2 13,100 34,400 3 13,100 34,400

What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.) Payback period of System 1 is years and Payback period of System 2 is years

If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? The firm should invest in .

Quebec, Inc., is purchasing machinery at a cost of $4,090,836. The company’s management expects the machinery to produce cash flows of $824,997, $916,331, and $2,593,831 over the next three years, respectively. What is the payback period? (Round answer to 3 decimal places, e.g. 15.251.)

Payback period is

years

Capitol Corp. management is expecting a project to generate after-tax income of $63,100 in each of the next three years. The average book value of the project’s equipment over that period will be $210,395. If the firm’s acceptance decision on any project is based on an ARR of 37.5 percent. (Round answer to 2 decimal places, e.g. 5.25%.)

What is the project’s accounting rate of return?

Accounting rate of return is

%

Should the firm accept this project?

The firm should accept reject the project

Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $339,388. The company's management projects that the cash flows from this investment will be $136,273 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Franklin Mints management can expect on this project? (Round answer to 2 decimal places, e.g. 5.25%.)

Cranjet Industries is expanding its product line and its production capacity. The costs and expected cash flows of the two independent projects are given in the following table. The firm uses a discount rate of 15.70 percent for such projects.

Year

Product Line Expansion

Production Capacity Expansion

0

$-2,914,385

$--8,641,760

1

704,400

2,390,750

2

677,250

2,390,750

3

690,550

2,390,750

4

900,638

4,041,375

5

691,950

3,217,500

a. What are the NPVs of the two projects? (Enter negative amounts using negative sign e.g. -45.25. Round answers to 2 decimal places, e.g. 15.25.)

NPV of product line expansion is $

NPV of production capacity expansion is $

b. Should both projects be accepted? or either? or neither?

Cranjet should accept only the product line expansion neither project both projects only the production capacity expansion

Timeline Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $1,032,713, and project B’s cost is $1,071,953. Cash flows from both projects are given in the following table.

Year

Project A

Project B

1

$86,212

$586,212

2

313,562

413,277

3

427,594

231,199

4

285,552

What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.)

Discounted payback periods of project A

Discounted payback periods of project B

Which will be accepted with a discount rate of 8 percent?

Timeline should choose neither project Project B Both projects Project A

Morningside Bakeries has recently purchased equipment at a cost of $535,710. The firm expects to generate cash flows of $318,411 in each of the next four years. The cost of capital is 14.20 percent. What is the MIRR for this project? (Round answer to 2 decimal places, e.g. 15.25%.)

Great Flights, Inc., an aviation firm, is considering purchasing three aircraft for a total cost of $169,964,196. The company would lease the aircraft to an airline. Cash flows from the proposed leases are shown in the following table.

Years

Cash Flow

1–4

$22,490,720

5–7

68,998,396

8–10

77,598,543

What is the IRR of this project? (Round answer to 2 decimal places, e.g. 15.25%.)

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Meet The Experts:

linda_us

Master's Degree

Satisfied Customers:

1051

Business Analyst and Solution Consultant with over 9 years of experience.