Enter:10810,000Solve For:-144,865.62TV=144,865.62MIRR=(TV/PV)(1/n)=(144,865.62/65,613.48)(1/10)=8.24%5. ANS: ACompute MIRRs with RI=8% and 10.5%, then compare the change in MIRR.with RI=8%:Using CF, enter the cash flows, thenIRR CPT (IRR=17) Scroll down for RIRI=8Scroll down to MOD to get the MIRR.MIRR (with RI=8%) = 13.9272%with RI=10.5%:IRR17 Scroll down for RIRI=10.5Scroll down to MOD to get the MIRR.MIRR (with RI=10.5%) = 14.7797%MIRR increases by 14.7797%-13.9272%=0.8525%6.ARetained earnings= Net income (1 – Payout ratio)= $5,000,000(1-0.70) = $1,500,000.External equity needed:Total equity required= (New investment)(1 – Debt-to-capital ratio)= $10,000,000(0.65) = $6,500,000.New external equity needed = $6,500,000 – $1,500,000 = $5,000,000.7.ANS:Dm=12 sincemonthlycash flowsKey:N = m x nI/YPVPMTEnter:12x10-201,253.493,000Solve For:1.0799Periodic (monthly) rate = 1.0799%, hence annual rate is 1.0799% x 12=12.9584%

8.Answer: EProject A:Using CF worksheet in your financial calculator enter the Cash flows and compute the NPV:NPV,I=10CPT NPV= $10,626.1899Project B:Using CF worksheet in your financial calculator enter the Cash flows compute the NPV:NPV,I=10CPT NPV= $5,357.1382Project A has higher NPV, both projects have positive NPV. Accept both projects.9.ANS:BRepurchase = 0.1 x 2,000,000= 200,000 shares.EPSOld= $10,000,000/2,000,000 =5P/E = 56/5=11.2Need to determine stock price after repurchase. P/E remains at 11.2EPSNew= $10,000,000 / (2,000,000-200,000)=$5.5556Use P/E ratio to calculate new price: P/E= 11.2P/$5.5556= 11.2PNew= $62.2210.CStock A expected return: 0.08 + 0.8 (0.16-0.08) = 14.40%Stock B expected return: 0.08 + 3.9 (0.16-0.08) = 39.20%Stock B has 39.20%-14.40%=24.8% higher expected return.or the difference in betas: (3.9-0.8) creates the expected return difference based on market risk premium of (16.00%-8.00%):(3.9-0.8)x(16.00%-8.00%) = 24.8%11.ANS:DFeedback:P5= P0(1 + g)5= $38.93The stock 5 years from now will pay higher dividends since the dividends grow by 5.00%, hence theprice will grow for 5 years. To find the price of any asset at any point in time, we need to use thefuture cash flows. In the case of a stock, if we need the price at t = 5, then we need the nextdividend which is at t=6.First find the dividend at t=1 (since we know the price at t=0)CurrentStock price P0=30.50 = D1/(r - g)= D1/(12.00% – 5.00%)Find D1:D1= 30.50*(12.00% – 5.00%)= $2.13505 years later, we need to calculate P5and for that we need the next dividend in year t=(5+1)=6P5= D6/(12.00% – 5.00%)where D6= D1(1 + 5.00%)5= 2.1350(1 +5.00%)5=$2.7249. Now if we use the dividend at t=6,then PV is one period before the first cash flow we use, hence PV is at t=5 (see timeline in TVM forPV and FV)

P5= D6/(12.00% – 5.00%)= 2.7249/(12.00% – 5.00%) = $38.93We get the same result in P5= P0(1 + g)5= $38.93. Why?UseP0= D1/(r - g) for P5=P0(1 + g%)5=D1(r−g)(1+g)5which isD6(r−g)= P512.ANS:ED1$1.25P0$45.00g5.00%F6.00%re=D1/(P0x (1 - F)) + g =7.96%13.C.DPS after split = $1.15.Equivalent pre-split dividend = $1.15(5) = $5.75.New equivalent dividend= Last year’s dividend(1.07)$5.75= Last year’s dividend(1.07)Last year’s dividend = $5.75/1.07 = $5.37.14.ANS:Dm=2 semiannual paymentsN = 2 x 20PV = -1,000 (at par,)PMT = Coupon rate x FV/ 2 = 0.07 x 1,000/2= 35FV = 1,000CPT I/Y = 3.5YTM = 3.5% x m=7% is the cost of debt.After-tax cost of debt=rd(1-T)With t=40%, after-tax cost of debt is 4.20%With t=30%, after-tax cost of debt is 4.90%It will increase by 0.70%Difference = Cost at new rate - Cost at old rate =0.70%15. ANS:COld PriceNew PriceD0$0.85$0.85P0$22.00$42.00g6.00%6.00%D1= D0(1 + g)$0.901$0.901rs= D1/P0+ g10.10%8.15%Difference, rs0- rs1–1.95%16.ANS:BIf projects mutually exclusive, then without knowing the crossover rate, we can’t use the IRR method, or MIRR method. NPVchoose Project X in this case.

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