# solution

1) The internal rate of return is defined as the A) discount rate which causes the net present value of a project to equal zero, B) discount rate that causes the profitability index for a project to equal zero C) maximum rate of return a firm expects to earn on a project. D) discount rate that equates the net cash inflows of a project to zero. E) rate of return a project will generate if the project is financed solely with internal funds. 2) Sankey Company has earnings per share of \$3.60. The benchmark PE is 18.1 times. What stock price would you consider appropriate? PE A) S50.28 B) \$65.16 C) \$48.27 D) \$21.70 E) \$57.72 A decrease in which of the following will increase the current value of a stock according to the dividend growth 3) model? A) Discount rate B) Dividend growth rate C) Number of future dividends, provided the total number of dividends is less than infinite D) Both the discount rate and the dividend growth rate E) Dividend amount Which one of the following types of costs was incurred in the past and cannot be recouped? A) Side B) Sunk C) Incremental D) Opportunity E) Erosion 5) A project that costs \$25,000 today will generate cash flows of 58,600 per year for seven years. What is the project’s payback period? 25,000 BO 8,60 A) 34 years B) 2.91 years C) 3.00 years D) 2.33 years E) 2.42 years ??? 8,600 66.00 The common stock of Eddie’s Engines, Incorporated, sells for \$44.78 a share. The stock is expected to pay dividend of 83.20 per share next year. Eddies has established a pattern of increasing their dividends by 5.3 percent annually and expects to continue doing so. What is the market rate of return on this stock? A) 15.0496 B) 12.4596 C) 6.3556 D) 13.9996 E) 7.1596 7) Which one of the following will decrease the net present value of a project? A) Increasing the project’s initial costat Time 0 B) Increasing the amount of the final cash inflow C) Moving each cash intlow forward one time period, such as from Year 3 to Year 2 D) Decreasing the required discount rate E) Increasing the value of each of the project’s discounted cash inflows 8) Knightmare, Incorporated, will pay a dividend of S6.05, 510.15, andS13.35 per share for each of the next three years, respectively. The company will then close its doors. Investors require a return of 11.4 percent on the company’s stock. What is the current stock price? A) \$35.57 B) \$26.61 C) \$23.27 D) \$30.29 E) \$28.66 9) The Ronnic Company has sales per share of \$25.67. If the PS ratio is 1.76 times, what is the stock price? A) \$45.18 B) \$14.59 C) \$39.53 D) \$48.19 E) \$14.00

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