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Bob Katz is interested in the following stock: – current dividend is $2.50 – projected three year growth rate of 10% – growth rate after year 3 is expected to fall and remain constant at 6% – Bob’s required return is 12%   Step 1: Present value of Dividends  t Do FVIF Dt PVIF PVdiv 1 2 3   Step 2: Future value of stock price     Step 3: Present value of future stock price    Step 4: Present value of stock    Solving for step 4, what would Bob Katz be willing to pay (approximately) for the stock?

Builtrite stock is currently selling for $44 and recently paid a dividendof $2.00. The stock has a projected constant growth rate of 10%. If youpurchase this stock, what is your expected rate of return?

Ally Gator has an IRA with a current balance of $22,500. Ally plans to continue depositing $6,000 annually into this account which earns 8%. After 40 years, what will the balance of Ally’s IRA be?

Builtrite has six-year, $1000 par bonds outstanding that pay an 8.45% coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 9 percent. What should investors be willing to pay for these bonds?

Ally Gator has an IRA with a current balance of $22,500. Ally plans to continue depositing $7,000 annually into this account which earns 8%. After 40 years, what will the balance of Ally’s IRA be?

Which of the following is TRUE about capital budgeting.

Jack Rabbit has saved $9,000 annually for the last 35 years in an account earning 8%. If Jack estimates that he will live for an additional 25 years, how much would he be able to start withdrawing annually for his retirement (8% interest)?

The risk-free rate is currently 4 percent, whereas the market risk premium is 8 percent. If the beta of Builtrite’s stock is 1.8, then what is the expected return on Builtrite’s stock?

Builtrite, Inc., has been installing a fiber-optic network at a cost of $18 million. The firm expects annual cash flows of $3.2million over the next 10 years. What is this project’s internal rate of return? (Round to the nearest percent.)

Bonds: Builtrite is planning on offering a $1000 par value, 20 year, 5% coupon bond with an expected selling price of $1025. Flotation costs would be $55 per bond.Preferred Stock: Builtrite could sell a $46 par value preferred with a 5% coupon for $38 a share. Flotation costs would be $6 a share.Common stock: Currently, the stock is selling for $62 a share and has paid a $4.82 dividend. Dividends are expected to continue growing at 10%. Flotation costs would be $3.75 a share and Builtrite has $350,000 in available retained earnings.Assume a 35% tax bracket. Their after-tax cost of internal common (retained earnings) is: