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Finance, WACC, beta, portfolio returns etc.

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.

Solution Summary

The problem set deals with issues in finance: Weighted average cost of capital, beta, returns etc.