Common Stock


Over a 5 year period   the quarterly change in the price per share of common stock for a major oil   company ranged from -8 to +12%. a financial analyst wants to learn what can   be expected for price appreciation of this stock over the next two years.   Using the five year history as a basis, the analyst is willing to assume the   change in price for each quarter is uniformly distributed between -8 and 12%.   Use simulation to provide information about the price per share for the stock   over the coming two year period (eight quarters).   

a) Use these random numbers (.52, .99,   .12,.15,.50,.77,.40,.52 to simulate  the quarterly price change for each   of the eight quarter   

b) If the current price per share is 80, what is the simulated price per share at the end of the two year period?


 Outcast, Inc., has hired you to advise the firm on a capital   budgeting issue involving two unequal-lived, mutually exclusive projects, M   and N. The cash flows for each project are presented in the following table.   Calculate the NPV and the annualized net present value (ANPV) for each   project using the firm’s cost of capital of 8%. Which project would you   recommend?

  Project M   Project N   Initial   Investment $35,000 $55,000   Year Cash   Inflows   1 $12,000   $18,000   2 25,000   15,000   3 30,000   25,000   4 – 10,000    5 – 8,000    6 – 5,000    7 – 5,000     

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