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Each Section should be completed in a separate spreadsheet tab and all calculations should be performed using Excel formulas:

Question 1:

a) Stock A just paid an annual dividend of $1.25 per share. The company expects that annual dividends will grow at a steady rate of 4%. Assuming a discount rate of 10.5%, what is the per share value of Stock A today? b) Stock B just paid an annual dividend of $1.50 per share. The company does not plan to increase or decrease the dividend; it plans to pay shareholders an annual dividend of $1.50 per share indefinitely. Assuming a discount rate of 6.0%, what is the per share value of Stock B today?

Question 2:

You own a new, boutique athletic equipment company called La La Lime. You have been presented with an opportunity to purchase new production equipment for $150,000 which will reduce costs and consequently provide after tax cash savings of $55,000 in year 1, $60,000 in year 2, and $65,000 in year 3; after that, the equipment will no longer be of use.

a) Assuming a 10% discount rate, what is the net present value of the proposed investment? Should you proceed with purchasing the equipment based on your calculated net present value?

b) What is the calculated internal rate of return on the proposed investment, rounded to the nearest tenth of percent?

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