Waterworks has a dividend yield of 925 if its

16. Waterworks has a dividend yield of 9.25%. If its dividend is expected to grow at a constant rate of 6.25%,
what must be the expected rate of return on the company’s stock? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
17. Computer Corp. reinvests 50% of its earnings in the firm. The stock sells for $70, and the next dividend
will be $3.50 per share. The discount rate is 15%. What is the rate of return on the company’s reinvested
funds? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The following are the cash flows of two projects:
Year Project A Project B
0 −$350 −$350
1 180 250
2 180 250
3 180 250
4 180
18. What is the payback period of each project? (Round your answers to 2 decimal places.)
19. The following are the cash flows of two projects:
Year Project A Project B
0 −$280 −$280
1 160 180
2 160 180
3 160 180
4 160
a. If the opportunity cost of capital is 10%, what is the profitability index for each project? (Do not round
intermediate calculations. Round your answers to 4 decimal places.)

b. Does the profitability index rank the projects correctly?
20. The following are the cash flows of two projects:
Year Project A Project B
0 −$220 −$220
1 100 120
2 100 120
3 100 120
4 100
a. Calculate the NPV for both projects if the discount rate is 10%? (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
b. Suppose that you can choose only one of these projects. Which would you choose?
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of
the giftware is $20.
Year Unit Sales
1 34,000
2 42,000
3 16,000
4 10,000
Thereafter 0
21. It is expected that net working capital will amount to 20% of sales in the following year. For example, the
store will need an initial (year-0) investment in working capital of .20 × 34,000 × $40 = $272,000. Plant and

equipment necessary to establish the Giftware business will require an additional investment of $212,000.
This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have
an economic and book value of zero. The firm’s tax rate is 30%. What is the net present value of the project?
(Do not round intermediate calculations. Round your answer to the nearest dollar
amount.)