Finance

Finance

Instructions:

You must show any and all work!!!!!!!

1. A company is expected to pay a dividend of $3.25 per share next year (t=1) and the dividend is expected to grow at a constant rate forever. The stock is currently selling for $42. If the required rate of return is 10 percent, what is the dividend growth rate?

Note: Please express your result as a percentage and keep two digits after the decimal point (e.g. 12.34% or 1.23%).

2. A 6.25 percent coupon bond (par value=$1,000) with 16 years left to maturity is offered for sale at $1,015.25. What is the yield to maturity of the bond? (Assume interest payments are semiannual.)

Note: Please express your result as a percentage and keep two digits after the decimal point (e.g. 12.34% or 1.23%).

3. A company has a current market value of $65 per share with earnings per share of $4.32. What is the net present value of its growth opportunities if the required rate of return is 8 percent?

Note: Please express your result as dollars and keep no digits after the decimal point.

4. A bakery is considering the purchase of a $9,500 coffee maker. The coffee maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 5,300 cups of coffee per year, with each costing $2.15 to make and priced at $4.25. Assume that the discount rate is 14 percent and the tax rate is 30 percent. Should the bakery make the purchase?