“Unit
3 Project
Chapters
8 10
There are guide problems in your class notes for each problem. If you have
questions, please contact me.
You must demonstrate computational support to receive credit

Question
1: 10 Points
You
would like to buy a share of XYZ Company common stock. Dividend
information on the company is as follows: XYZ declared a .50cents per
share dividend today. They anticipate extraordinary growth in the next 3
years. Dividends are expected to grow by 50%, 60% and 25% respectively in
the next 3 years. After this period, dividends are expected to grow at
constant rte of 6% forever. The required rate of return on this stock is
10%.
A.Draw a cash flow time line
for the dividends
B.Complete the following the
sentence: The value of any asset is the________.
C.What would you consider a
fair price for the stock today? (Hint: You must use the constant growth
formula for part of the solution, remember, the formula uses expected dividends
in year 1).

Question
2: 20 Points
Poppa
Company is planning its capital budget for next year. They anticipate net
income of $10,000. Their dividend payout ratio is 50%. The companys
earnings and dividends are growing at a constant rate of 6%. The last
dividend paid was .90 cents. The current stock price is
$9.00. Poppas cost of debt is 15%. The company would incur flotation
costs of 20% if it issues new common equity. Their capital structure is
40% debt and 60% equity. The company has a marginal tax rate of
35%. Poppa has the following independent, indivisible and equally risky
investment opportunities:

Project

Cost

IRR

A

$12,000

18%

B

$20,000

14%

C

$10,000

15%

D

$10,000

16%

Which
projects should Poppa accept and why?
Steps
to Solve

1.Compute Capital Structure
Weights (Provided)
2.Compute Retained Earnings
Break Point
a.What is the Value of
Retained Earnings?
b.Compute Break Point
3.Compute the component costs
of:
a.Retained Earnings
b.New Common Stock
c.New Preferred Stock
d.Debt
4.Determine the Marginal Cost
of Capital (before and after the break point).

Project Selection- Optimal
Capital Budget
1.Determine the order of project selection.
Provide rank order.
2.Projects should be funded if the IRR is greater
than MCC
Show all work, discuss your
process and the significance of your findings.Unit
3 ProjectChapters
8 10 There
are guide problems in your class notes for each problem. If you have
questions, please contact me.You
must demonstrate computational support to receive credit Question
1: 10 PointsYou
would like to buy a share of XYZ Company common stock. Dividend
information on the company is as follows: XYZ declared a .50cents per
share dividend today. They anticipate extraordinary growth in the next 3
years. Dividends are expected to grow by 50%, 60% and 25% respectively in
the next 3 years. After this period, dividends are expected to grow at
constant rte of 6% forever. The required rate of return on this stock is
10%. A.Draw a cash flow time line
for the dividendsB.Complete the following the
sentence: The value of any asset is the________.C.What would you consider a
fair price for the stock today? (Hint: You must use the constant growth
formula for part of the solution, remember, the formula uses expected dividends
in year 1). Question
2: 20 PointsPoppa
Company is planning its capital budget for next year. They anticipate net
income of $10,000. Their dividend payout ratio is 50%. The companys
earnings and dividends are growing at a constant rate of 6%. The last
dividend paid was .90 cents. The current stock price is
$9.00. Poppas cost of debt is 15%. The company would incur flotation
costs of 20% if it issues new common equity. Their capital structure is
40% debt and 60% equity. The company has a marginal tax rate of
35%. Poppa has the following independent, indivisible and equally risky
investment opportunities:ProjectCostIRRA$12,00018%B$20,00014%C$10,00015%D$10,00016% Which
projects should Poppa accept and why?Steps
to Solve1.Compute Capital Structure
Weights (Provided)2.Compute Retained Earnings
Break Pointa.What is the Value of
Retained Earnings?b.Compute Break Point3.Compute the component costs
of:a.Retained Earningsb.New Common Stockc.New Preferred Stockd.Debt4.Determine the Marginal Cost
of Capital (before and after the break point).Project Selection- Optimal
Capital Budget1.Determine the order of project selection.
Provide rank order.2.Projects should be funded if the IRR is greater
than MCCShow all work, discuss your
process and the significance of your findings.”