FIN 500 Introduction to Finance

Module 7 Individual Assignment 4

Instructions:
This assignment covers the material from Module 5 to Module 7. Please make your answers are
clear and to the point. You must show any and all work to receive full credit. Submit your
responses in the form of a PDF file.

1. A company is expected to pay a dividend of $3.25 per share next year (t=1) and the dividend
is expected to grow at a constant rate forever. The stock is currently selling for $42. If the
required rate of return is 10 percent, what is the dividend growth rate? (2 pts.)

Note: Please express your result as a percentage and keep two digits after the decimal point (e.g.
12.34% or 1.23%).

2. A 6.25 percent coupon bond (par value=$1,000) with 16 years left to maturity is offered for
sale at $1,015.25. What is the yield to maturity of the bond? (Assume interest payments are
semiannual.) (2 pts.)

Note: Please express your result as a percentage and keep two digits after the decimal point (e.g.
12.34% or 1.23%).

3. A company has a current market value of $65 per share with earnings per share of $4.32.
What is the net present value of its growth opportunities if the required rate of return is 8
percent? (2 pts.)

Note: Please express your result as dollars and keep no digits after the decimal point.

4. A bakery is considering the purchase of a $9,500 coffee maker. The coffee maker has an
economic life of five years and will be fully depreciated by the straight-line method. The
machine will produce 5,300 cups of coffee per year, with each costing $2.15 to make and
priced at $4.25. Assume that the discount rate is 14 percent and the tax rate is 30 percent.
Should the bakery make the purchase? (4 pts.)

Grade: 10 points
Due: You have three attempts for your assignment submission before 11:59 PM US Central Time
on Tuesday of the Module, but only the last attempt will be graded. Please make sure you have
attached the correct file before you submit your assignment.