# Expert Solutions

1.)A share of preferred stock pays a quarterly dividend of \$2.50. If the price of this preferred stock is currently \$44, what is the nominal annual rate of return? (select the closest answer)

2.) Ewert Enterprises’ stock currently sells for \$30.50 per share. The stock’s dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, rs, is 10.00%. What is Ewert’s expected price 3 years from today?

3.) Flint Fruits is considering two equally risky, mutually exclusive projects, Projects A and B, that have the following cash flows:
Year                           Project A                   Project B                  Difference
0                                 -100000                   -100000                          0
1                                    40000                      30000                      10000
2                                    25000                      15000                      10000
3                                   70000                      80000                       10000
4                                   40000                      55000                       15000

4.) Anderson Associates is considering two mutually exclusive projects that have the following cash flows:
Year                       Project A                         Project B               Difference
0                                10000                              8000                       2000
1                                 1000                               7000                       6000
2                                 2000                              1000                        1000
3                                6000                               1000                        5000
4                                6000                               1000                        5000

5.) Stanson Inc. is considering the purchase of a new machine which will reduce manufacturing costs by \$6,000 annually and increase earnings before depreciation and taxes by \$6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5
year operating life for \$10,000 before taxes. Stanton’s marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. If the machine’s cost is \$40,000, what is the project’s NPV? [MACRS table required]
Year            Dep Rate                Dep Amount
1                   20.00%                       \$8,000
2                   32.00%                     \$12,800
3                   19.20%                       \$7,680
4                    11.52%                      \$4,608
5                   11.52%                       \$4,608
6                     5.76%                       \$2,304

Year        Increase in            Saving in        Dep             EBIT        Taxes          EAT               Cash
Revenue              Expense       Amount                                                                Flow
1                   6000                  6000             \$8,000        \$4,000       \$1,600     \$2,400        \$10,400
2                  6000                   6000           \$12,800         -\$800          -\$320        -\$480        \$12,320
3                  6000                   6000             \$7,680        \$4,320       \$1,728     \$2,592        \$10,272
4                  6000                   6000             \$4,608        \$7,392       \$2,957      \$4,435         \$9,043
5                  6000                   6000             \$4,608        \$7,392        \$2,957     \$4,435         \$9,043

Year            Cash Flow
0                        40000
1                    \$10,400
2                    \$12,320
3                    \$10,272
4                     \$9,043
5                   \$15,965