1. Free Motion Enterprises intends to pay a $2.20 per share annual dividend in t
ID: 2726688 • Letter: 1
Question
1. Free Motion Enterprises intends to pay a $2.20 per share annual dividend in the coming week. Dividends are expected to increase by 3.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent?
A. $19.76
B. $19.30
C. $19.56
D. $20.29
E. $20.79
2. What is the net present value of a project with the following cash flows if the required rate of return is 9 percent?
Year
Cash Flow
0
-42398
1
18201
2
21319
3
17800
A. -$1,574.41
B. $5,918.19
C. $5,904.65
D. $5,988.81
E. $6,311.16
3. A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 15 percent?
A. $1327.85
B. $1,048.75
C. $1,237.11
D. $1,388.98
E. $11,168.02
4. You are considering the following two mutually exclusive projects. The required rate of return is 14.6 percent for project A and 13.8 percent for project B. Which project should you accept and why?
Year
Project A
Project B
0
-50000
-50000
1
24800
41000
2
36200
20000
3
21000
21000
A. project A; because it has the higher required rate of return
B. project A; because its NPV is about $4,900 more than the NPV of project B
C. project B; because its NPV is about $4,563 more than the NPV of project A
D. project B; because its NPV is about $2,563 more than the NPV of project A
E. project B; because it has the lower required return
Year
Cash Flow
0
-42398
1
18201
2
21319
3
17800
Explanation / Answer
What is one share of this stock worth to you today if your required rate of return is 15 percent?
Answer
P0=[ $2.20*(1.0375)].15-.0375 = $20.29
2. What is the net present value of a project with the following cash flows if the required rate of return is 9 percent?
3. A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 15 percent?
You are considering the following two mutually exclusive projects. The required rate of return is 14.6 percent for project A and 13.8 percent for project B. Which project should you accept and why?
D. project B; because its NPV is about $2,563 more than the NPV of project A
Year Cash flows 0 $(42,398.00) 1 $ 18,201.00 2 $ 21,319.00 3 $ 17,800.00 ROR 9% NPV $5,988.81Related Questions
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