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True/False
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.
t
0
1
2
3
4
5
CF
-500 150
220
-80
360
100
Assuming a discount rate of 10% please calculate Net Present Value, Payback,
and Discounted Payback
Formula Sheet
PV*(1+r)t
FV/(1+r)t
(1+r)t – 1 * CF
r
1 – 1/(1+r)t * CF
r
CF/r

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D1/(r-g)

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