13) Gremlin Industries will pay a dividend of $1.85 per share this year. It is e

Question

13) Gremlin Industries will pay a dividend of $1.85 per share this year. It is expected that this dividend 18) will grow by 4% per year each year in the future. The current price of Gremlin's stock is $23.90 per share. What is Gremlin's equity cost of capital? A) 16% B) 11% C) 1496 D) 12% 19, Jumbo Transport, an air-cargo company, expects to have earnings per share of$2.75 in the coming 19) year. It decides to retain 20% of these earnings in order to lease new aircraft. The return on this investment will be 25%. If its equity cost of capital is 11%, what is the expected share price of Jumbo Transport? A) $25.67 B) $29.34 C) $22.00 D) $36.67 20, A company has stock which costs $43.25 per share and pays a dividend of $2.90 per share this year. The company's cost of equity is 8%, what is the expected annual growth rate ofthe 20) . A)5.16% B)1.29% C) 2.58% D) 3.87% 21 Consider the following two projects: 21) Year 1 Year 2 Year 3 Year 4 Discount ProjectYear 0 Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Rate 40 30 50 30 50 30 NA 30 0.1 0.12 73 The payback period for project A is closest to C) 2.4 years D) 22 years B) 2.6 yeans A) 2.0 years get (guaranteed) 22) 22) Tanner is choosing between two investment options. He can invest $500 now and $500 now and get (guaranteed) $531.40 back later today. The risk-free $550 in one year, or invest rate is 3.5%, which investment should Tanner fer? since $1 today is worth more than $1 in one year. A) $531.40 later today, B) $550 in one year, since it is $50 more than he invested rather than $31.40 more than both investments have a negative NPV uld be indifferent between the two investments, since both are equivalent to the same amount of cash today awards a landscaping company a contract worth S1.3 million per year for five 23) 23: A loca maintaining public parks. The landscaping company will need to buy some new ngipment could cost if the contract is to be worthwhile for the landscaping company? years fo r before theycan take on the contract. If the cost of capital is 8%, what is the most that B) $4.67 million C) $5.45 million D) $5.19 million A) 54.93 million orcharder spends $100,000 to plant pomegranate bushes. It will take four years for the bushes 24)_ 24; An worth $11,000 investment? a usable crop. He estimates that every year for 20 years after that he will receive a crop per year. If the discount rate is 10%, what is the net present value (NPV) of this A) -536,036 B) $10,811 C)-$18,01t8 D) S7207

Explanation / Answer

22)

Correct option is (D).

Present value of $550 received in one year FV×(1÷(1+r)^n) Here, 1 rate per annum 3.50% 2 Number of years                                        1 3 Number of compoundings per per annum                                        1 4 = 1÷3 rate per period ( r) 3.50% 5 = 2×3 Number of periods (n)                                        1 Future value (FV) $                         550.00 Present value of $550 received in one year $                         531.40 550*(1/(1+3.50%)^1)

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