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##### Gb550 unit 5 assignment

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Question;Problem (9-10)The earnings;dividends, and stock price of Shelby Inc. are expected to grow at 7% per year;in the future. Shelby's common stock sells for\$23 per share, its last dividend;was \$2.00, and the company will pay a dividend of\$2.14 at the end of the;current year.;a.;a. Using the discounted cash flow approach, what is its cost;of equity?a.;If the firm's beta is 1.6;the risk-free rate is 9%, and the expected return on the market is 13%, then;what would be the firm's cost of equity based on the CAPM approach? c.;c. If the firm's bonds earn a return of 12 %, then what would be your estimate;of rs using the over-own-bond-yield-plus-judgmental-risk-premium;approach? (Hint: Use the midpoint of the risk premium range.)d. On;the basis of the results of parts a through c, what would be your estimate of;Shelby's cost of equity?Problem;(10-1) a project has an initial cost of \$40,000 expected net cash inflows of;\$90,00 per year for 7 years, and a cost of capital of 11%. What is the;project's NPV? (hint: Begin by constructing a time line).(10-2);Refer to problem 10-1. What is the project?s IRR?(10-3);Refer to problem 10-1. What is the project?s MIRR?(10-4);Refer to problem 10-1. What is the project?s PI?(10-5) Refer to problem 10-1. What is the;project?s payback period?(10-6) Refer to problem 10-1. What is the;project?s discounted payback period?(10-7);Your division is considering two investment projects, each of which requires an;up-front expenditure of \$15 million. You estimate that the investments will;produce the following net cash flows;Year?.Project A????. Project B;1??... \$5,000,000???.. \$20,000,000;2??... \$10,000,000??... \$10,000,000;3??... \$20,000,000??... \$6,000,000;a. What are the two projects? net present values, assuming the cost of capital;is 5%, 10%, and 15%?;b.;what are the two projects? IRR at these same costs of capital?

Paper#50891 | Written in 18-Jul-2015

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