**1.** **Your company wants to raise $10 million by issuing 20- year zero- coupon bonds. If yield to maturity on the bonds will be 6% (annually compounded APR), what total principal amount of bonds must you issue?**

**2.** **Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if the firm’s equity cost of capital is 11%?**

**3.** **The following table contains prices and dividends for a stock. All prices are after the dividend has been paid. If you bought the stock on January 1 and sold it on December 31, what is your realized return?**

**You are choosing between two projects, but can only take one. The cash flows for the projects are given in the following table:**

**0**

**1**

**2**

**3**

**4**

**A**

-$50

25

20

20

15

**B**

-$100

20

40

50

60

**a)** **What are the IRRs of the two projects?**

**b)** **If your discounted rate is 5%, what are the NPVs of the two projects?**

**c)** **Why do IRR and NPV rank the two projects differently?**

**4. You buy 100 shares of Tidepool Co. for $40 each and 200 shares of Madfish, Inc., for $15 each. What are the weights in your portfolio?**

**5. You are analyzing a stock that has a beta of 1.2. The risk-free rate is 5% and you estimate the market risk premium to be 6%. If you expect the stock to have a return of 11% over the next year, should you buy it? Why or why not?**

**6. This year, FCF, Inc., has earnings before interest and taxes of $10 million, depreciation expenses of $1 million, capital expenditures of $1.5 million, and has increased its net working capital by $500,000. If its tax rate is 35%, what is its free cash flow? **

**7. River Enterprises has $500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $15 million. They are expected to generate $200 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises’ cost of equity capital is 12% per year in perpetuity. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share of stock be if you are right?**

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