$(20\%)($Stocks$)$ Fincorp will pay a yearend dividend of $$2\mathrm{.}40$ per share, which is expected to grow at a $4\%$ rate indefinitely. The discount rate is $12\%.$

a$.(3\%)$ What is the stock selling for?

b$.(3\%)$ If total earnings are $$3\mathrm{.}10$ a share, what must be the plow back ratio of the firm?

c$.(3\%)$ What must be the return on equity for Fincorp shares?

d$.(2\%)$ What is the max dividend the company can pay if it decides not to retain any earnings?

e$.(2\%)$ What is the price per share if the company decides not to retain any earnings?

f$.(2\%)$ Calculate the present value of growth opportunities for this firm.

g$.(5\%)$ Is it a good idea for the manger to issue the yearend dividend? Briefly explain.

$(20\%)($Project analysis$)$ Consider the following three mutually exclusive projects:

$\backslash$table$[[$Project$,$Cash flow at yr $0,$Cash flow at yr $1,$Cash flow at yr $2,$Cash flow at yr $3],[$A$,-3000,2000,1000,500],[$B$,-3000,1000,7000,2000],[$C$,-5000,2000,1000,10000]]$

a$.(5\%)$ Determine the payback period for each of the projects.

b$.(5\%)$ Calculate the NPV of each of the project if interest rate is $4\%$ compounded yearly.

c$.(5\%)$ Calculate the IRR for each of the projects.

d$.(5\%)$ Calculate the profitability index for each of the projects.

$3.(15\%)($Equivalent Annual Cost$)$ A firm can lease a truck for $4$ years at a cost of $$30,000$ annually. It can instead buy a truck at a cost of $$80,000,$ with annual maintenance expenses of $$10,000.$ The truck will be sold at the end of $4$ years for $$20,000.$ Which is the better option, if

a$.(6\%)$ the discount rate is $12\%$

b$.(6\%)$ the discount rate is $4\%$

c$.(3\%)$ Comment on the how the discount rate affect the decision to lease or purchase, i$.$e$.$ if the discount rate increases, which option will be more attractive?

$4.(15\%)($Timing Decision$)$ Company JC needs to undergo a major computer upgrade. The benefits of the system will be $$50$ per year for $15$ years, regardless on when the system is installed. The price of the system costs $$300$ upfront. However, like other technological goods, the price of the same system is expected to go down by $$10$ a year. Should Company JC install the system now, wait for $1$ year, or wait for $2$ years? Assume interest rate is $10\%$ p$.$a$.$

$5.(30\%)$ Short Questions

a$.(6\%)$ What are the differences between the fundamentalist and the technical analysists in the stock market? What is random walk? Briefly explain

b$.(6\%)$ What is capital rationing? Name the two types of capital rationing.

c$.(6\%)$ What are the two potential errors that a company using payback rules might face in terms of capital budgeting? Why discounted payback rule is a better rule than the payback rule.

d$.(6\%)$ Why depreciation is not a good measurement of the equivalent annual cost? If a project requires an asset investment of $$1000,$ and the asset is expected to last $10$ years. Assume interest rate is $5\%,$

e$.(6\%)$ What is the major difference between sensitivity and scenario analysis, as mentioned in class? Explain why scenario analysis may be a better option.