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AFTER TAX SALVAGE=MV-T*(MV-BV) TOATL %RETURN=(SELLING PRICE-PURCHASE

PRICE+DIVIDEND)/PURCHASE PRICE

AFTER TAX SALVAGE=MV-T*(MV-BV) TOATL %RETURN=(SELLING PRICE-PURCHASE


PRICE+DIVIDEND)/PURCHASE PRICE

MACRS 5-year property at a cost of $216,000. The MACRS rates are .2, .32, and .192 for years 1 to 3, respectively. Which one of the
following will correctly give you the book value of this equipment at the end of year 2? 216,000 (1 - .2 - .32)
LAND VALUED TODAY AT 395000, UNUSED EQUIPMENT VALUED AT 38000, COULD BE USED FOR 12000$ AWNINGS, OTHER
EQUIPMENT COSTS 138000. WHAT IS PROJECT INITIAL CF? CF0=-395000-38000-12000-138000=583000
stock that had returns of 4 percent, -5 percent, -15 percent, and 16 percent for four of the last five years. The average return of the
stock for the past year-year period was 8 percent. What is the standard deviation of the stock's returns for the 5-year period?

Return5 = (.08 5) (.04 - .05 - .15 + .16) = .40, or 40 percent

AFTER TAX SALVAGE=MV-T*(MV-BV) TOATL %RETURN=(SELLING PRICE-PURCHASE


PRICE+DIVIDEND)/PURCHASE PRICE
Std dev = [1/(5 - 1)] [(.04 - .08)2 + (-.05 - .08)2 + (-.15 - .08)2 + (.16 - .08)2 + (.40 - .08)2 = .2122, or 21.22 percent

A stock had annual returns of 16 percent, 8 percent, -17 percent, and 21 percent for the past four years. Based on this information,
what is the 95 percent probability range of returns for any one given year?

Average return = (.16 + .08 - .17 + .21)/4 =.07, or 7 percent

= [1/ (4 - 1)][(.16 -.07)2 +(.08 -.07)2+ (-.17 -.07)2+ (.21 -.07)2].5= .1687, or 16.87 percent

95% probability range = .07 (2 16.87 percent) = -26.74 to 40.74 percent (2 STDEVS FROM MEAN)
Over the past four years a stock had prices of $15.40, $15.85, $16.30, and $15.70, respectively. The stock pays an
annual dividend of $.50 a share. What is the geometric average return on this stock?

Over the past four years a stock had prices of $15.40, $15.85, $16.30, and $15.70, respectively. The stock pays an annual dividend of
$.50 a share. What is the geometric average return on this stock?
PGH, Inc. is considering a new six-year expansion project that requires an initial fixed asset investment of $3.102 million. The fixed
asset will be depreciated straight-line to zero over its six-year tax life, after which time it will be worthless. The project is estimated to
generate $1,987,000 in annual sales, with costs of $1,102,200. The tax rate is 35 percent and the required return on the project is 16
percent. What is the net present value for this project?

OCF = ($1,987,000 - 1,102,200)(1 - .35) + ($3,102,000 / 6)(.35) = $756,070

NPV = -$3,102,000 + $756,070({1 - [1 / (1.16)6]} / .16) = -$316,081.72

A 5-year project has an initial fixed asset investment of $522,600, an initial net working capital investment of $13,200, and an annual
operating cash flow of -$51,480. The fixed asset is fully depreciated over the life of the project and has no salvage value. The net
working capital will be recovered when the project ends. The required return is 13.8 percent. What is the project's equivalent annual
cost, or EAC?

NPV = -$522,600 - 13,200 - $51,480({1 - [1 / 1.1385]} / .138) + $13,200 / 1.1385

NPV = -$706,471.75

EAC = -$706,471.75 / ({1 - [1 / 1.1385]} / .138)

EAC = -$204,795.33

The common stock of Air United had annual returns of 13.7 percent, 4.8 percent, -6.7 percent, and 27.9 percent over the last four years, respectively. What is the
standard deviation of these returns?

Average return = (.137 + .048 - .067 + .279)/4 = .09925, or 9.925 percent

AFTER TAX SALVAGE=MV-T*(MV-BV) TOATL %RETURN=(SELLING PRICE-PURCHASE


PRICE+DIVIDEND)/PURCHASE PRICE
= [1/(4 - 1)] [(.137 - .09925)2 + (.048 - .09925)2 + (-.067 - .09925)2 + (.279 - .09925)2] = .1461, or 14.61 percent
Suppose you bought a 6 percent coupon bond one year ago for $950. The face value of the bond is $1,000. You
sold the bond today for $994. If the inflation rate last year was 3.1percent, what was your total real rate of return
on this investment?
Nominal return = ($994 - 950 + 60)/$950 = .1095. or 10.95 percent
Real return = [(1 + .1095)/(1 + .031)] - 1 = .0761, or 7.61percent

The common stock of Metal Molds has a negative growth rate of 1.2 percent and a required
return of 17.5 percent. The current stock price is $12.20. What was the amount of the last
dividend paid?
RE=[D*[1+G]]/PRICE+G
The common stock of Metal Molds has a negative growth rate of 1.2 percent and a required
return of 17.5 percent. The current stock price is $12.20. What was the amount of the last
dividend paid? WHERE I =REQ RETURN

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