1. Company Y does not plow back any earnings and is expected to produce a level dividend stream of $5 a share. If the current stock price is $40, what is the market capitalization rate? (Round your answer to 1 decimal place.) 
Market capitalization rate 
% 
2. Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a year. If next year’s dividend is $10 and the market capitalization rate is 8%, what is the current stock price? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 
Current stock price 
$ 
3. Consider three investors: 

a. Mr. Single invests for one year. 
b. Ms. Double invests for two years. 
c. Mrs. Triple invests for three years. 
Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a year, the next year’s dividend is $10 and the market capitalization rate is 8%. 
Assume each invests in company Z, what is the expected rate of return? (Do not round intermediate calculations. Round your answers to 2 decimal places.) 

Expected 

Mr. Single 
% 

Ms. Double 
% 

Mrs. Triple 
% 



5. You have the chance to participate in a project that produces the following cash flows: 
Cash Flows, $ 

C_{0} 
C_{1} 
C_{2} 
+5,000 
+4,000 
–11,000 

a. 
The internal rate of return is 13%. If the opportunity cost of capital is 10%, what is the NPV of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) 
NPV 
$ 
b. 
Would you accept the offer? 






Subject  Business 
Due By (Pacific Time)  07/11/2015 12:00 am 
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