Question 43 Question 4b 43 4 points 45 46 47 48 49 50 51 Question 5a 52 53 54 55 56 5? 58 59 60 4 points 61 62 63 65 66 6? 68 an Last year A1 Bank paid an annual dividend of $7 per share. The bank expects the growth of its dividends to be stable at 2% per year going forward. a) If investors require an 8% return, what is the current value of A1 Bank's stock? [round to nearest cent) b) If the stock currently trades at $124.55 per share, what is the dividend growth rate investors expect? (round to nearest percent) Hint: When the constantgrowth formula is solved for the growth variable, it becomes: g = D/P + r A team of analysts is using a two-stage variable growth model to estimate the value of ABCM's common stock. The most recent annual dividend paid by ABCM was $4 per share. The analysts expect dividends to increase 7% per year for the next 3 years and then drop to 3% starting in year 4 and remain at that rate for the foreseable future. The required rate of return used for the analysis is 8% a) What are the expected dividends for the next 4 yea rs? b) What is the value of the stock attributable to the rst 3 years of dividends? [use NPVfu nction) c) What is the value of the stock at the end of year 3? [use constant-growth mode!) d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to pa rt C is the fv} e) What is the total value of ABCM stock? 86 87 88 89 90 91 92 93 94 95 95 97 93 99 100 101 102 103 104 105 Question Ea Question 6b Question 6: 6 points A food processing company is considering replacing essential machinery. Cost and relevant cash flow details are provided in the table at the right. The company requires an 11% return on its capital. a) What is the present value of the yearly cash flows? Use a Time Value of Money function for full credit. [round to nearest dollar} b) What is the net present value of the project? (round to nearest dolla r} c) What is the internal rate of return of the project? Use a Time Value of Money function for full credit. [round to two Cost of Project Yr 1 cash flow Yr 2 cash flow Yr 3 cash flow Yr 4 cash flow Yr 5 cash flow Yr 6 cash flow Yr 7 cash flow Cost ($2,000,000) (200,000) (75,000) 90,000 150,000 500,000 1,400,000 2,500,000 100,000 Question 73 Question 7b 4 points Similar projects, Eta and Zeta, are being considered using the payback method. Each has an initial cost of$100,000. Annual cash flows for each project are provided in the table at the right. a) What is the pay back period in years for Eta? (round to two decimal places) b) What is the pay back period in years for Zeta? Determine the cumulative cash flows for each year in the column next to the table (round to two decimal places) Year Project Eta Project Zeta .05 07 .08 .09 .10 .11 .12 .13 .14 .15 .16 .17 Question 8 4 points Question 9a Question 9b Question 9: Question 9d Question 9e Question 9f Question 9g Thomas manufacturing is capitalized with long-term debt, preferred stock and common stock. The amount and cost of each capital source is in the table at the right. The cost of debt is the after-tax cost. What is the rm's weighted average cost of capital? Show the 'weight' calculation for each capital source in the final formula or via separate formulas next to the data table. (round to two decimal places) A small manufacturer is considering an equipment replacement project. The new equipment would have an installed cost of $125,000 and would replace existing equipment that was purchased 3 years ago at an installed cost of $80,000. If the company moves fonvard with the replacement, it could sell the old equipment for $25,000. Purchasing the new equipment would result in the company's current assets increasing by $12,000 and current liabilities increasing by $9,000. The company uses the 5-year MACRS table for depreciation (use the rates from our text and homework problems) and is taxed at 21%. a) What is the accumulated depreciation of the old equipment? b) What is the current book value of the old equipment? c) What is the amount of depreciation recaptu re/recovery? cl) What is the tax on the sale of the old equipment? e) What are the after-tax proceeds from the sale of the old Long-term debt Preferred stock Common stock Total Amount (5) 750,000 250,000 4,200,000 5,200,000 Cost ('34.) Mani-j 7 7 ' ' 118 119 120 121 122 123 124 125 125 127 128 129 130 131 132 133 134 135 135 137 138 139 140 141 142 143 144 Question 9a Question 9b Question 9c Question 9d Question 9e Question 9f Question Sg 8 points A small manufacturer is considering an equipment replacement project. The new equipment would have an installed cost of $125,000 and would replace existing equipment that was purchased 3 years ago at an installed cost of $80,000. If the company moves forward with the replacement, it could sell the old equipment for $25,000. Purchasing the new equipment would result in the company's current assets increasing by $12,000 and current liabilities increasing by $9,000. The company uses the 5-year MACRS table for depreciation (use the rates from our text and homework problems) and is taxed at 21%. a) What is the accumulated depreciation of the old equipment? b} What is the current book value of the old equipment? c) What is the amount of depreciation recapture/recovery? d} What is the tax on the sale of the old equipment? e) What are the after-tax proceeds from the sale of the old equipment? f} What is the change in Net Working Capital? g) What is the initial investment for the project