The Seneca Maitenance Company currently (that is, as of year 0) pays a common stock

QUESTION

 

Name: __________________

Date: __________________

Questions 1-35

1

6

11

16

21

26

31

2

7

12

17

22

27

32

3

8

13

18

23

28

33

4

9

14

19

24

29

34

5

10

15

20

25

30

35

Questions
(10 *30 = 30 points)

36. The
Seneca Maitenance Company currently (that is, as of year 0) pays a common stock
dividend of $2.5 per share. Dividend are expected to grow at a rate of 11% per
year for the next 4 years and then continue growing thereafter at a rate of
5.5% per year. What is the current value of a share of Seneca common stock to
an investor who require a 15% rate of return?

37. New Castle Company common stock has
a beta of 1.5. The stock currently pays a dividend of $3 per share. The
risk-free rate is 8%, and the market risk premium (rm “ rf) is expected to be
8.0%. Determine

a) What is the required rate of return
for New Castles common stock?
b) If the current price of the stock if
$25 per share, is the stock under- or over-valued?

38.
Alpah Company is planning to open a
new store. The equipment and fixtures cost 250,000
and be depreciated to $0 over a 10 year period on straight line base. The new
store will require Alpha to increase its net working capital by 200,000 at time
0.First year sales expected at $1m and to increase at an annual rate of 8% over
the expected 10-year life of the store.Operating expense projected to be
$700,000 during the first year and to increase at 7% annual rate. Salvage value
anticipated at $10,000 at the end of 10 years. Tax rate at 40%. Calculate
a)
Net present value, using 18%
required return.
b)
Internal rate of return
c)
Profitability index.
d)
Should Alpah accept the project?

Hint: you can use the
following template to work out the solutions.

ANSWER

CLICK HERE TO GET AN EXPERT SOLUTION TO THE QUESTION