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1. Stephen Enterprise has two competing investments in computer equipment. Two computer equipment A and B, of equal risk, are alternatives for expanding the capacity. Both projects are expected to stay economical for 5 years and expecting no salvage value at the end of 5 years. The firms cost of capital is 10% and the cash flows for each equipment are shown in the following table.

	Computer Equipment A	Computer Equipment B
Initial Investment (CF0)	RM 100,000	RM 100,000
Year (t)	Cash Inflows (CFt) (RM)
1	60,000	20,000
2	60,000	20,000
3	40,000	40,000
4	20,000	60,000
5	20,000	60,000

1. Compute the net present value of both computer equipment using discounted cash flow method.

2. Recommend Stephen Enterprise to invest in which computer equipment.

2. Sarah Boutique recently paid RM 1.20 as an annual dividend. Future dividends are projected at RM 1.25, RM 1.28, RM 1.40 over the next three years, respectively. Beginning four years from now, the dividend is expected to increase by 2.0 percent annually. What is the share value if the investor required rate of return is 10%?

3. A valuer estimates that next years net income for Hilary Pullman Hotel would be RM 8 million. The company has 0.5 million shares outstanding and decided to pay RM 0.5 million to the preferred stockholders from its net income. Listed companies similar to Hilary Pullman Hotel have been recently reported to have an average price/earnings ratio of 4 times. Given the information, compute the expected price of the stock and discuss the problems in using Price/earnings ratio method of valuing the shares of a company.

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