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Finance questions

Question 1

Sorenson Stores is considering a project that has the following cash flows:
Year Cash Flows
1 $2,000
2 $3,000
3 $3,000
4 $1,500
The project has a payback of 2.5 years, and the firm's cost of capital is 12%. What is the project's NPV?

Question 2

You work for Smith Company as a consultant. Kroncke target capital structure is 30%debt, 20% preferred, and 50% common equity. The after-tax cost of debt is 8%, the cost of preferred is 6.5%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC?
a. 10.07%
b. 10.37%
c. 9.48%
d. 10.68%
e. 10.325%

Question 3

If Do = $2.75, g (which is constant) = 3% and Po - $36, what is the expected total return for the coming year?
a. 9.82%
b. 10.07%
c. 10.33%
d. 10.60%
e. 10.87%

Question 4

Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not receive a dividend at the end of year 1, but you will receive a dividend of $9.25 at the end of year 2. In addition, you expect to sell the stock for $150 at the end of year 2.
If your expected rate of return is 16 percent, how much should you be willing to pay for this stock today?

Solution Summary

The solution explains some questions relating to NPV, WACC, Expected rate of return, stock valuation