298_Sample_Final

298_Sample_Final - CMP 298 Sample Final Quantitative...

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CMP 298 Sample Final Quantitative Questions 1.a) A project is expected to cost $200,000 and earn perpetual income of $20,000 at the end of every year. Set up the equation you would use to find the IRR of this project. b) If the company’s cost of capital is 12%, would you accept or reject this project? Show calculations. c) What is the minimum growth rate in earnings that would be required for the company to accept this project?
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2.a) This morning a company issued a dividend for $2.00. Due to impressive market performance, dividends are expected to grow at 10% for the next three years, 8% for the year following, and level off at 5% every year from then on. If the price of one share at the end of the day was $55.00, set up the equation that would determine the rate of return being demanded by the market. b) If the real return was 9%, was the stock overpriced or underpriced? c) What would your realized rate of return be if you purchased the stock for $55.00 at the end of the day, and sold it after 4 years (and four subsequent dividends) if you did not
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This note was uploaded on 02/19/2011 for the course COMM 298 taught by Professor Freedman during the Spring '09 term at UBC.

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298_Sample_Final - CMP 298 Sample Final Quantitative...

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