Question

7. You have a choice between 2 mutually exclusive investments. If you require a 8% return, which investment should you choose? (Circle your answer) Slayton og vil brod is no ch .000.A B Year Cash Flow Cash Flow E lo n -$240,000 $100,000 80,000 50,000 80,000 50,000 80,000 50,000 80,000 8. If Divo = $1.15, g (which is constant) = 3.3%, and Po = $22.00, what is the stock's expected dividend yield for the coming year? a. 4.12% b. 4.54% c. 4.87% d. 5.23% e. 5.40%

Answer 1

7). NPV of A = -240,000 + 80,000*PVIFA(8%,4) = -240,000 + 80,000*3.3121 = 24,970.15

NPV of B = -100,000 + 50,000*PVIFA(8%,3) = -100,000 + 50,000*2.5771 = 28,854.85

B should be chosen as it has a higher NPV @ 8%.

8). Expected dividend yield = Div0*(1+g)/P0 = 1.15*(1+3.3%)/22 = 5.40% (Option e)