Evaluate the projects using risk-adjusted discount rates

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Reference no: EM13657970

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1. Bob Jones purchased 100 shares of New York Times stock for $55 per share one year ago, for his wife's birthday. During the year, Times paid cash dividends of $2 per share. The Times' stock is currently selling for $68 per share with a 4% discount. A dividend option for $5 share was offered to all investors. Next year's forecast is showing an expected dividend of $2.25 per
share. If Smith sells all of his shares of New York Times today, what rate of return would he realize?
2. The GE is in process of purchasing a production tool. In their search, they have gathered the following information about two possible tools.
A B
Initial Investment 12000 12000
A B
Return Probability Return Probability
Pessimistic 15.00% 0.3 9.00% 0.3
Most Likely 18.00% 0.45 18.00% 0.45
Optimistic 21.00% 0.25 25.00% 0.25
a) Compute expected rate of return for each choice.
b) Compute variance and standard deviation of rate of return for each machine.
c) Based on the coefficient of variation, which copier should they purchase?
H
3 At Sams, Inc has increased management control over inventory. Mr. Smith reports the following information: an average collection period of 45 days, an average age of inventory of 60 days, and an average payment period of 30 days. The firm's cash conversion cycle is ________ days.
4. Quality Antiques has a beta of 1.40, the annual risk-free rate of interest is currently 10 percent, and the required return on the market portfolio is 16 percent. The firm estimates that its future dividend will continue to increase at an annual compound rate consistent with that experienced over the 2009-2012
period.
Year Dividend
2009 $2.70
2010 $2.95
2011 $3.25
2012 $3.40
(a) Estimate the value of Quality Antiques stock.
(b) A lawsuit has been filed against the company by a competitor, and the potential loss has increased risk, which is reflected in the company's beta, increasing it to 1.6. What is the estimated price of the stock following the filing of the lawsuit.
5. Randy Moss Farm Implement is faced with two mutually exclusive projects, P and Q. The following are the data about the two projects.
(a) Evaluate the projects using risk-adjusted discount rates. (NPV)
(b) Which project do you recommend?

Reference no: EM13657970

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