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Assignment 2

Complete the following problems in either Microsoft Word or Excel.

Your work must be organized. ighlight !our final answer.

Chapter "#"$%# Compan! &'s earnings and di(idends per share are expected to grow indefinitel!

b! %) a !ear. *f next !ear's di(idend is +,- and the market capitalization rate is )/what is the current stock price0

"$1# *f compan! & see 3roblem %4 were to distribute all its earnings/ it couldmaintain a le(el di(idend stream of +,% a share. ow much is the market actuall!

pa!ing per share for growth opportunities0

Chapter %#%$5# a. Calculate the net present (alue of the following pro6ect for discount rates of -/%-/ and ,--)#

Cash 7lows +4 C- C, C2$8/1%- 9"/%-- 9,/---

b. What is the *:: of the pro6ect0%$# Consider the following pro6ects#

Cash 7lows +43ro6ect C- C, C2 C5 C" C%A $,/--- 9,/--- - - - -; $2/--- 9,/--- 9,/--- 9"/--- 9,/--- 9,/---C $5/--- 9,/--- 9,/--- - 9,/--- 9,/---

a. *f the opportunit! cost of capital is ,-)/ which pro6ects ha(e a positi(e

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8$2# Mr. Art >eco will be paid +,--/--- one !ear hence. ?his is a nominal flow/which he discounts at an ) nominal discount rate#

3= % @ ,--/---,.- @ +B2/%B5?he inflation rate is ").

Calculate the 3= of Mr. >eco's pa!ment using the eui(alent real cash flow and realdiscount rate. You should get exactl! the same answer as he did.48$# ?he following table tracks the main components of working capital o(er the lifeof a four$ !ear pro6ect.

2-,- 2-,, 2-,- 2-,5 2-,"Accounts recei(able - ,%-/--- 22%/--- ,B-/--- -*n(entor! 1%/--- ,5-/--- ,5-/--- B%/--- -Accounts pa!able 2%/--- %-/--- 5%/--- 5%/--- -

Calculate net working capital and the cash inflows and outflows due to in(estment in

working capital.Dhow all !our work to earn partial credit.