22) Willie\'s Western Corp. has outstanding nonconvertible preferred stock (cumu

Question

22) Willie's Western Corp. has outstanding nonconvertible preferred stock (cumulative) that pays a quarterly
dividend of $1.65. If your required rate of return is 9.5%, what should you be willing to pay for 1000 shares of
Willie's Western? SHOW WORK

23) Lincoln Industries Inc. is considering a project that has an initial after-tax outlay or after-tax cost of
$350,000. The respective future cash inflows from its five-year project for years 1 through 5 are $85,000 each
year. Lincoln expects an additional cash flow of $50,000 in the fifth year. The firm uses the net present value
method and has a discount rate of 10%. Will Lincoln accept the project? Why? SHOW WORK

A) Lincoln accepts the project because it has an NPV greater than $18,000.
B) Lincoln rejects the project because it has an NPV less than $0.
C) Lincoln accepts the project because it has an NPV greater than $3,000.
D) There is not enough information to make a decision.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

22)

Value of 1000 Shares =Annual Dividend/Required Rate of Return*1000 = (4*1.65)/9.5%*1000 = $69473.68

Answer is $$69473.68 or $69474.

23)

NPV = -350000 + 85000/(1+.10)^1+ 85000/(1+.10)^2 + 85000/(1+.10)^3+ 85000/(1+.10)^4+ 85000/(1+.10)^5+50000/(1+.10)^5 = $3262.94

Option C ( Lincoln accepts the project because it has an NPV greater than $3,000) is the correct answer.

Thanks.

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