FIN 419 Expect Success/uophelp.com FIN 419 Expect Success/uophelp.com | Page 29

a. an investor wants a 5% return?
b. an investor wants an 8% return?
c. an investor wants a 10% return?
d. an investor wants a 13% return?
e. an investor wants a 20% return?
15. Using Yahoo! Finance (http://finance.yahoo.com/) and ticker
symbol PEP, find
PepsiCo’s historical dividend payment and current price. Historical
dividends are available in the historical price section. Use these
payments to find the annual
dividend growth rate. (If you have a quarterly pattern be sure to
annualize this
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?