Question Details

What is Ewert's expected price 3 years from today 



	1.  You have the following data on three stocks:			
			Stock	Standard Deviation	Beta
			A	0.15	0.79		
			B	0.25	0.61		
			C	0.20	1.29		

As a risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

a.	A; A. 

b.	A; B. 
c.	B; C. 

d.	C; A. 

e.	C; B. 

2. Ewert Enterprises' stock currently sells for $30.50 per share. The stock's dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, rs, is 10.00%. What is Ewert's expected price 3 years from today ?

a.	$31.61 

b.	$32.43 
c.	$33.26 

d.	$34.11 

e.	$34.81 

3. You were hired as a consultant to Kroncke Company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC?
a.	9.48% 

b.	9.78% 

c.	10.07% 

d.	10.37% 

e.	10.68% 

4. To help finance a major expansion, Delano Development Company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 10.25% annual coupon, paid semiannually, it sells at a price of $1,025, and it has a par value of $1,000. If Delano's tax rate is 40%, what component cost of debt should be used in the WACC calculation?

a.	5.11% 
b.	5.37% 
c.	5.66% 

d.	5.96% 
e.	6.25% 

5. Thompson Stores is considering a project that has the following cash flow data. What is the project's IRR, NPV and Payback if the WACC is 10%? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.

Year:	0	1	2	3	4	5
Cash flows:	$1,000	$300	$295	$290	$285	$270

a.	IRR - 11.16%, NPV = 96.72, Payback = 3.4 years 

b.	IRR= 13.78%, NPV = 125.232, Payback = 3.4 years 

c.	IRR= 13.78%, NPV = 96.72, Payback = 3.4 years 
d.	IRR = 12.45%, NPV = 96.72, Payback 4.1 years 

e.	IRR = 12.45%, NPV = 125.232, Payback = 4.1 years 




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