What is the undiscounted cash flow in the final year of an investment, assuming

Question

What is the undiscounted cash flow in the final year of an investment, assuming $100,000 after-tax cash flows from operations, $10,000 from the sale of a fully depreciated machine, $4,000 required in additional working capital, and a 35% tax rate? A.$104,000 B. $6,500 C.$100,000 D.$110,500

If a stock is purchase for $30 per share and held one year, during which a $3.00 divined is paid and the price climbs to $36, the nominal rate of return is? A. 10% B.20% C.30% D. 25%

What is the percentage return on a stock that was purchased for $74.00, paid a $6.00 divined after one year, and was then sold for $70.00? A. -5.4% B. +2.7% C. +4% D.+8.1% The company cost of capital: A. cost of funds used for financing a business B. Depends on current profits and cash flows C. Is measured using security book values D. depends on historical profits and cash flows

Explanation / Answer

Undiscounted Cash flow in final year = 100,000+ 10,000 *(1-35%) + 4000 = $ 110,500 Answer (D)

Nominal return = D1/P0 + g where g in growth in dividends ,20% = 3/30 + 20% = 30% Answer : (C)

Return on stock = (Final Price +Dividends- Initial Price/Initial Price)*100= [70+6- 74] /74 = 2.7% Answer (B)

The company cost of capital is the cost of funds used for financing a business. Answer (A)

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