A firm with a 13.5 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$12,000 $4,100 $3,800 $5,900 Project Y: -$9,000 $4,900 $4,100 $3,700 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

Mack Industries just paid a dividend of $1.00 per share (i.e., D0 = $1.00). Analysts expect the company’s dividend to grow 20 percent this year (i.e., D1 = $1.20), and 15 percent next year. After two years the dividend is expected to grow at a constant rate of 5 percent. The required rate of return on the company’s stock is 12 percent. What should be the current price of the company’s stock?

A firm with a 9 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$15,000 $6,900 $6,600 $7,200 Project Y: -$6,000 $2,000 $2,300 $1,900 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

What is the present value of an ordinary annuity that pays $3,600 per year for 5 years, assuming the annual discount rate is 4 percent?

Nancy recently received a credit card with a nominal interest rate of 22 percent.  With the card, she purchased some new clothes for $250.  The minimum payment on the card is only $20 per month.  If Nancy makes the minimum monthly payment and makes no other charges, how long will it be before she pays off the card?

A firm’s bonds have a maturity of 23 years with a $1,000 face value, a 7 percent semiannual coupon, are callable in 4 years at $1,075, and currently sell at a price of $1,165.  What is their yield to call (YTC)?

The Capital Asset Pricing Model describes the relationship between

Your client is 45 years old, and she wants to begin saving for retirement, with the first payment to come one year from now.  She can save $3,000 per year, and you advise her to invest it in securities which you expect to provide an average annual return of 8 percent.  If she follows your advice, how much money would she have at age 65?

Your uncle has $375,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?