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##### (9-10) The earning dividends, and stock price of...

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(9-10) The earning 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 Using the discounted cash flow approach, what is its cost of equity? B If the firm?s beta 1.6, the risk-free rate 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 If the firm?s bonds a return of 12%, then what would be your estimate of r, 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 the parts a through c, what would your estimate of Shelby?s cost of equity? (10-1) A project has an initial cost of 52,125, expected net cash inflows of 12, 000 per year for 8 years and a cost of capital of 12%%. 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 MIRR? (10-4) Refer to Problem 10-1. What is the project PI? (10-5) Refer to Problem 10-1. What is the project?s paycheck period? (10-6) Refer to Problem 10-1. What is the project?s discounted paycheck 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? B What are the two projects? IRRs at these same costs of capital?

Paper#7096 | Written in 18-Jul-2015

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