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1. Southeast Compositions, Inc. is considering a project with the following cash flows:
Initial Outlay = $126,000
Cash Flows: Year 1 = $44,000
Year 2 = $59,000
Year 3 = $64,000
Compute the net present value of this project if the company's discount rate is 14%.
Select one:
a. $1,193
b. $725,000
c. $239,209
d. -$1,193
2. Sentry Manufacturing paid a dividend yesterday of $5 per share. The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing's stock today is $29 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of new common stock is
a. 28.38%.
b. 31.40%.
c. 26.62%.
d. 24.12%.
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Biopharma is a pharmaceutical company. Biopharma’s annual stock returns have a CAPM beta of 1.25 (i.e. β =1.25). The market portfolio’s return is 13%, and the riskfree rate is 5%. a. What is the required expected return for Biopharma according to the..
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