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# XYZ stock is expected to pay a dividend of \$3.25 for the next 5 years.

Question XYZ stock is expected to pay a dividend of \$3.25 for the next 5 years. After that, the dividend will increase to \$3.75 and continue indefinitely. XYZ’s cost of equity capital is 7%. Using the Dividend Discount Model, please calculate the value of XYZ stock today. If the cost of equity capital increases to 8% after 5 years, how does that affect the price?

## 3.、A project will produce annual sales of \$100,000 with fixed costs

Question 3.、A project will produce annual sales of \$100,000 with fixed costs of \$46,250 for four years. During the life of the project, inventory will be lowered by \$20,000 and accounts receivable will increase by \$35,000. Accounts payable will increase by \$10,000. The project requires the purchase of equipment at an initial cost of \$120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a \$25,000 cash flow. At the end of the project, net working capital will return to its normal level. The tax rate is 20%. (1) Compute the project’s cash flows of year 0? Year 1? Year 2? Year 3? Year 4? Year 5?

## 4.Bruno, Inc. is analyzing two machines to determine which one they

Question 4.Bruno, Inc. is analyzing two machines to determine which one they should purchase. The company requires a 10 % rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of \$290,000, annual operating costs of \$8,000, and a 3-year life. Machine B costs \$180,000, has annual operating costs of \$12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. The tax rate is 20%. Which machine should Bruno’s purchase and why? (Round your answer to whole dollars)

## Exercise 3-6A (Algo) Cost structure, risk, and the break-even point LO 3-2

Question Exercise 3-6A (Algo) Cost structure, risk, and the break-even point LO 3-2 Jordan Company produces a product that sells for \$29 per unit and has a variable cost of \$12 per unit. Jordan incurs annual fixed costs of \$100,300. RequiredDetermine the sales volume in units and dollars required to break even. (Do not round intermediate calculations.)Calculate the break-even point assuming fixed costs increase to \$156,400. (Do not round intermediate calculations.)THE ANSWER FOR BREAK EVEN SALES IS NOT 171,100 (IT IS WRONG)

## You have just started your first job and you want to have the basic

Question You have just started your first job and you want to have the basic appliances (fridge, washer, dryer, etc.) in your apartment. You face the following choices: (i) Purchase all appliances at the store using a bank loan. There is no down payment as the bank can take your appliances if you default on the loan. The loan is at the annual market rate of 6%, and the loan amount is \$7,300 to be repaid monthly over 4 years. (ii) Rent-to-buy from the same store. The monthly rental is \$155 for 48 months and then you pay \$800 to own all the appliances. What is the net cost today of the cheapest option? (Enter just the number in dollars without the \$ sign or a comma and round off decimals to the closest integer, i.e., rounding \$30.49 down to \$30 and rounding \$30.50 up to \$31.)

## 6.You are considering a new product launch. The project will cost

Question 6.You are considering a new product launch. The project will cost \$630,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sale price per unit will be \$24,000, variable cost per unit will be \$12,000, and fixed costs will be \$283,000 per year. The relevant tax rate is 30%. What is the accounting break-even quantity? What is the cash break-even quantity? What is the financial break-even quantity? What is the degree of operating leverage at the accounting break-even level of output? Please explain the meaning of degree of operating leverage.

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