1. Co. A is considering the following project. The project cost will be due one year from today and will be $100m. The company will receive $200m in revenue from the project but that will be two years from today. What is the PV of the profit on the project?
2. Co. A is about to pay a dividend of $2.00 per share. Its future EPS and dividends are expected to grow with inflation, which is forecasted at 5% per year. What is the company's stock price? The nominal cost of capital is 10%.
3. If the risk-free rate of return is 4% and the expected return on the market is 10%, calculate the expected return for Co A with a beta of 2
4. Co. A has a debt-to-firm-value ratio of 20% and an equity-to-firm-value ratio of 80%. The required rate of return on equity of Co. A is 18% while the long-term borrowing rate is 9%. Co. A's marginal tax rate is the statutory rate of 35%. Calculate its after-tax weighted average cost of capital.© BrainMass Inc. brainmass.com October 25, 2018, 1:43 am ad1c9bdddf
Co. A is considering the following project. The project cost will be due one year from today and will be $100m. The company will receive $200m in revenue from the project but that will be two years from today. What is the PV of the profit on the project?
Present value measures the intrinsic worth of a future cashflow after it has been discounted into the present.
R = the discount rate,
N = the number of years,
Future value ...
The problem set deals with issues in finance: Weighted average cost of capital, beta, returns etc.
Corporate Finance Problems/ Calculating Returns
1. Calculating Returns. Suppose a stock had an initial price of $84 per share, paid a dividend of $1.40 per share during the year, and had an ending share price of $96. Compute the percentage of total return.
2. Holding Period Returns. A stock has had returns of -17.62 percent, 15.38 percent, 10.95 percent, 26.83 percent, and 5.31% over the past five years, respectively. What was the holding period return for the stock?
3. Calculating Returns. You bought a share of 5.5 percent preferred stock for $92.73 last year. The market price for the stock is now $95.89. What is your total return for last year?
4. Calculating Returns. You bought a stock three months ago for $32.81 per share. The stock paid no dividends. The current share price is $37.53. What is the APR of your investment? The EAR?
5. Portfolio Expected Returns. You own a portfolio that has $3,400 invested in Stock A and $4,100 invested in Stock B. If the expected returns on these stocks are 9.5 percent and 15.2 percent, respectively, what is the expected return on the portfolio?
6. Using CAPM. A stock has a beta of 1.25, the expected return on the market is 11.5 percent, and the risk-free rate is 3.4 percent. What must the expected return on this stock be?
7. Calculating cost of equity. The XOXO Corporation's common stock has a beta of 1.15. If the risk-free rate is 4.5 percent and the expected return on the market is 11 percent, what is XOXO's cost of equity capital?
8. Calculating WACC. Libby Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its cost of equity is 15 percent, and the cost of debt is 8 percent. The relevant tax rate is 35%. What is Libby's WACC?