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quarterly growth rate.) Now, find the required rate of return for this
stock, assuming
that the future dividend growth rate will remain the same and the
company has an
infinite horizon. Does this return seem reasonable for PepsiCo?
Chapter 9 – Q10
10. Net present value. Lepton Industries has four potential projects, all
with an initial cost of $1,500,000. The capital budget for the year will
allow Lepton to accept only one of the four projects. Given the discount
rates and the future cash flows of each project, determine which project
Lepton should accept.
ANSWER:
Chapter 11 – Q12
12. Book value versus market value components. The CFO of DMI is
trying to determine the company’s WACC. Brad, a promising MBA,
says that the company should use book value to assign the components
percentage for the WACC. Angela, a long-time employee and
experienced financial analyst, says the company should use market value
to assign the components. The after-tax cost of debt is at 7%, the cost of
preferred stock is at 11%, and the cost of equity is at 14%. Calculate the
WACC using both the book value and market value approaches with the
following information. Which do you think is better? Why?
Chapter 16