1. A company that is guaranteed to pay dividends can have a positive value.
2. Forecasting cash flows has no significant risks.
3. Discount rate is a synonym for coupon rate.
4. Bond prices are inversely related to their time to maturity.
8. Adam Clayton wants to sell stock to raise capital. He plans to issue a dividend of
$7.00 next year and growing at a 4% rate forever. What is the intrinsic value
of this stock if the discount rate is 8%?
9. INXS Corporation, a maker of “What You Need”, just paid a dividend of $2.00.
The dividends have a constant growth rate of 10%. The required rate of return on
this firm is 16%. What is the intrinsic value of a share of this stock?
10. Bueller, Inc. has a 30 year bond that has existed for 10 years, a coupon rate of
10%, and a required rate of 10%. Assuming a face value of $1000, what is the
intrinsic value of the bond? What if the required rate was 6%? What if the
required rate was 14%?
11. A new 10 year bond has a coupon rate of 25%. The bond is nine years old and has
a required rate of return of 10%. The face value is $1000. What is the intrinsic value
of the bond?
13. A potential project has the following expected cash flows.
Assuming a discount rate of 10% please calculate Net Present Value, Payback,
and Discounted Payback
(1+r)t – 1 * CF
1 – 1/(1+r)t * CF