Comprehensive_Final_Exam

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University of North Alabama *

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FI-632

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Finance

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Feb 20, 2024

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Problem 1 SDJ has net working capital of $3550, current liabilities of $5350, and inv Working Capital $ 3,710 CA = CL+WC Current Liabilities $ 5,500 Inventory $ 4,440 Current Ratio 1.67 CR = CA/CL Quick Ratio 0.87 QR = (CA-INV)/CL Problem 2 Shelton Inc., has sales of $17m, total assets of $15.9 million, and tota Sales $ 17,000,000 Total Assets $ 15,300,000 Total Debt $ 5,700,000 Profit Margin 7% Net Income $ 1,190,000 ROA 7.78% NI /TA ROE 12.40% NI/TE TE = TA-TD Problem 3 Augilera Corp has a current accounts receiveable balance of $332,875. C Accounts Receiveables $ 338,500 Sales $ 4,847,320 Receivables Turnover 14.32 sales/rec Days' Sales in Receiveables 25.49 365/rec turnover Average Collection Period 25.49 Problem 4 The Green Corp has ending inventory of $476,200 and COGS was $4,028 Ending Inventory $ 480,940 COGS $ 4,352,507 Inventory Turnover 9.05 COGS/INV Days' sales in inventory 40.33 365/Inv turnover
Days on shelf in inventory 40.33 Problem 5 Levine, Inc., has a total debt ratio of .38. What is the debt equity ratio Total Debt Ratio 0.36 Assets = 1.00 Debt-Equity Ratio 0.56 TD/TE Equity Mulitplier 1.56 Problem 6 Retained Earnings $ 192,000 Cash Dividends Paid $ 182,000 Total Equity $ 4,870,000 Stock Price $ 65.00 Shares Outstanding 100,000 Sales 3,180,000 Earnings Per Share 3.74 NI/# Of Shares Dividends Per Share 1.82 Divs/# of shares Book Value 48.70 TE/# of Shares Market-to-Book Ratio $ 1.33 MV/BV Price-Earnings Ratio $ 17.38 Stock Price / EPS Price-Sales Ratio $ 2.04 Implied Sales Problem 7 If Roten Rooters, Inc., has an equity multiplier of 1.56, total asset turnov Dup EM 1.54 (NI/Sales)x(Sale Total Asset Turnover 1.8 Profit Margin 6.4% ROE 17.74% Problem 8 Zombie Corp has a profit margin of 5.5%, total asset turnover of 1.9, and Maker's Corp. had additions to retained earnings for the year just ended and it has ending total equity of $4.86 million. 150,000 shares outstandin
PM 6.60% TAT 1.7 ROE 18.74% Debt-to-Equity Ratio 0.670231729055 Problem 9 You are given the following information for Dawn Corp: Decrease in inventory 500 Source Decrease in Accounts Payable 200 Use Increase in Notes Payable 185 Source Increase in Accounts Receiveable 215 Use Did cash go up or down? By how much? Cash By 270 Classify each event as a source or use of cash Decrease in inventory Source Decrease in Accounts Payable Use Increase in Notes Payable Source Increase in Accounts Receiveable Use Problem 10 Accounts Payable $ 8,613 COGS $ 45,421 5.27354 Days' sales in payable 69.21346954052 Problem 11 Market Value $ 586,000 Balance Sheet Cash Debt Income Statement EBIT $ 97,000 Depreciation/Amortization $ 141,000 Hare, Inc., had a cost of goods sold of $45,621. At the end of the year, th average did it take the company to pay off its suppliers during the year? The market value of the equity of Thompson, Inc., is $584,000. The balan while the income statement has EBIT of $95,000 and a total of $139,000 value-EBITDA multiple for this company?
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Enterprise value-EBITDA mulitple 3.180672268908 A EV = (Market Cap + value of debt + minority interest + preferred shares) - (cash & c EBITDA = Earnings Before Tax + Interest + Depreciation + Amortization Market Value $ 586,000 EBIT Cash $ (25,000) Dep/Amor Debt $ 196,000 EBITDA Enterprise Value $ 757,000 EV Multiple Problem 12 SME Company has a debt-equity ratio of .70. Return on assets is 8.2 perc Debt-to-Equity Ratio 0.80 ROA 7.3 Total Equity $ 480,000 Equity Multiplier 1.8 Return on Equity 13.14 Net Income 63,072 Problem 13 Sales 6369 Total Assets 2985 PM x (Sal D/E Ratio 1.7 PM = [(ROE)(TA ROE 13% Net Income 143.72 Y3K, Inc., has sales of $6,319, total assets of $2,935, and a debt–equity r net income?
ventory of $4690 $ 9,210 al debt of $8.8 million. Assume profit margin is 6% PM = NI / SALES NI = SALES X PM $ 9,600,000 Credit Sales for the year just ended were $4,207,540 8,652
Liabilities + Equity 0.36 0.64 NI = RE + DIVS 31.8 Price-Sales Ratio = Stock Price / Implied Sales Price ver of 1.70 and a profit margin of 6.6%, what is the ROE pont Analysis es/TA)x(TAxTE) PM x TAT x EM d ROE of 20.04%. What is this firm's debt-equity ratio? d of $359,000. The firm paid out $181k in cash dividends, ng
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EM = ROE/(TAT x PM) 1.670231729055 $ 25,000 $ 196,000 he accounts payable balance was $8,763. How long on nce sheet shows $23,000 in cash and $194,000 in debt, 0 in depreciation and amortization. What is the enterprise
cash equivalents) $ 97,000 $ 141,000 $ 238,000 3.18067226890756 cent, and total equity is $520,000. Dupont Analysis ROE = PM x TAT x EM les / TA) x (1 + TD/TE) A)] / [(1 + TD/TE)(Sales)] 0.022565900804243 ratio of 1.30. If its return on equity is 14 percent, what is its
Problem 1 PV = FV / (1 + r)^n FV = PV / (1 + r)^n PV N r FV $ 2,300 10 14.0% $ 8,526.61 $ 8,852 8 8.0% $ 16,384.43 $ 77,355 15 13.0% $ 483,799.09 $ 184,796 6 5.0% $ 247,644.31 Problem 2 PV = FV / (1 + r)^n FV = PV / (1 + r)^n PV N r FV $ 6,536.11 13 7.0% $ 15,751.00 $ 33,460.83 4 13.0% $ 54,557.00 $ 19,892.84 29 14.0% $ 889,073.00 $ 17,611.40 40 9.0% $ 553,164.00 Problem 3 *Note, must change PV to negative to account for cash outflows; only for Rate and Years PV = FV / (1 + r)^n FV = PV / (1 + r)^n PV N r FV $ (170.00) 3 4.86% $ 196.00 $ (290.00) 17 5.60% $ 732.00 $ (32,000.00) 18 7.85% $ 124,723.00 $ (31,261.00) 20 10.40% $ 226,140.00 Problem 4 *Note, must change PV to negative to account for cash outflows; only for Rate and Years PV = FV / (1 + r)^n FV = PV / (1 + r)^n PV N r FV $ (630.00) 11.24 8.00% $ 1,496.00 $ (880.00) 9.20 12.00% $ 2,496.00 $ (19,100.00) 18.26 18.00% $ 392,101.00 $ (22,200.00) 22.14 14.00% $ 403,794.00 Problem 5
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Annual Rate of Interest 8.04% Solving For FV PV Rate Years Problem 6 At 6.1 percent interest, how long does it take to double your money? Length of time 12.95 Solving For FV PV Rate Years At 6.1 percent interest, how long does it take to quadruple your money? Length of time 25.89 Solving For FV PV Rate Years Problem 7 Assume that in January 2017, the average house price in a particular area was $305,300. In FV $ 305,300 Solving For N 17 FV r SOLVE FOR RATE PV PV 203000 Rate PMT Years Annual increase in 2.32% Problem 8 Assume the total cost of a college education will be $250,000 when your child enters colle What annual rate of interest must you earn on your investment to cover the cost of your c You're trying to save to buy a new $201,000 Ferrari. You have $51,000 today that can be in before you have enough to buy the car?
FV $ 201,000 Solving For N FV r 5.9 PV PV 51000 Rate PMT Years # of Years 32.17 Problem 9 FV $ 585,000,000 Solving For N 20 FV r 7.80% PV PV ($130,250,874.87) Rate PMT 0 Years PV $ 176,793,280.14 Problem 10 FV $ 2,000,000 Solving For N 64 FV r 9 PV PV solve Rate PMT Years PV $ 6,215.19 Problem 11 FV SOLVE Solving For N 111 FV r 4.40% PV PV -53 Rate PMT Years $6,310.03 FV $ 14,906.81 Imprudential, Inc., has an unfunded pension liability of $576 million that must be paid in 2 to the present. If the relevant discount rate is 6.9%, what is the PV of this liability? You have just received notification that you have won the $2 million first prize in the Cente to collect), 64 years from now. What is the PV of your windfall if the appropriate discount Your coin collection contains 59 1952 silver dollars. If your grandparents purchased them f 2069, assuming they appreciate at an annual rate of 5 percent?
xxx Problem 12 In 1895, the first Putting Green Championship was held. The winner’s prize money was $21 FV $ 1,470,000 Solving For N 121 FV r PV PV 210 Rate PMT Years a) What was the percentage increase per year in the winner's check over this period? b) If the winner's prize increases at the same rate what will it be in 2042? Problem 13 FV $ 10,361,500 Solving For N 3 FV r -6% PV PV $ (12,477,500.00) Rate PMT Years Annual Rate of Ret -3.47% Problem 14 A coin sold at auction in 2017 for $3,587,000. The coin had a face value of $1 when it was FV $ 415,000 Solving For N 185 FV r solve PV PV 1 Rate PMT Years n ROR a) ROR from 1785-1970 185 7.24 b) ROR from 1970 - 2017 47 4.7 c) ROR 1785-2017 232 6.72 Although appealing to more refined tastes, art as a collectible has not always performed so Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,497,50
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n ROR a) ROR from 1794-1971 177 7.18 b) ROR from 1971-2017 46 7.8 c) ROR 1794-2017 223 7.31
PV n r FV $ - $ - $ (58,000.00) 16 8.04% $ 200,000.00 0.00 PV n r FV $ - $ - Err:502 $ (1.00) 12.95 5.50% $ 2.00 PV n r FV $ - $ - Err:502 $ (1.00) 25.89 5.50% $ 4.00 n January 2000, the average price was $203,300. What was the annual increase in selling price PV n r FV $ - $ - $ (195,300.00) 17 2.32% $ 288,600.00 #NUM! 6.10% $ 4.00 ege in 17 years. You presently have $56,000 to invest. child’s college education? nvested at your bank. The bank pays 5.9 percent annual interest on its accounts. How long will it be
PV n r FV $ - $ - $ (203,000.00) 17 2.43% $ 305,300.00 $ (41,000.00) 32.17 4.90% $ 191,000.00 PV n r FV $ - $ 176,793,280.14 20 6.0% $ 567,000,000.00 $ (203,000.00) 17 2.43% $ 305,300.00 $ (51,000.00) 23.92 5.90% $ 201,000.00 PV n r FV $ - $ 6,215.19 67 9.0% $ 2,000,000.00 $ (203,000.00) 17 2.43% $ 305,300.00 $ (51,000.00) 23.92 5.90% $ 201,000.00 PV n r FV $ 58 116 4.9% $ 14,906.81 $ 8,048.86 64 9.0% $ 2,000,000.00 $ (203,000.00) 17 2.43% $ 305,300.00 $ (51,000.00) 23.92 5.90% $ 201,000.00 25 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back ennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around rate is 9% for their face value when they were new, how much will your collection be worth when you retire in
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10. In 2016, the winner’s check was $1,470,000 PV n r FV $ 1,460,000 25 7.5440% $ 8,995,131.08 9852280.05 $ 8,048.86 64 9.0% $ 2,000,000.00 $ (220.00) 121 7.5440% $ 1,460,000.00 $ (51,000.00) 23.92 5.90% $ 201,000.00 7.59 9833082.87 PV n r FV $ 210 147 7.6% $ 9,833,082.87 $ 8,048.86 64 9.0% $ 2,000,000.00 $ (12,197,500.00) 5 -3.47% $ 10,221,500.00 $ (51,000.00) 23.92 5.90% $ 201,000.00 issued in 1785 and had previously been sold for $415,000 in 1970. PV n r FV $ 210 147 7.6% $ 9,833,082.87 $ 8,048.86 64 9.0% $ 2,000,000.00 $ (1.00) 223 7.31% $ 6,794,000.00 $ (51,000.00) 23.92 5.90% $ 201,000.00 o profitably. During 2003, an auction house sold a sculpture at auction for a price of $10,371,500. 00.
Problem 1 McCann Co. has identified an investment project with the following cash flows. Year Cash Flow PV @ 7% PV @ 18% PV @ 24% 1 $750.00 $ 700.93 $ 635.59 $ 604.84 2 $990.00 $ 864.70 $ 711.00 $ 643.86 3 $1,250.00 $ 1,020.37 $ 760.79 $ 655.61 4 $1,350.00 $ 1,029.91 $ 696.31 $ 571.01 $ 3,615.92 $ 2,803.70 $ 2,475.32 a) If the discount rate is 7 percent, what is the present value of these cash flows? b) What is the present value at 16 percent? c) What is the present value at 30 percent? Problem 2 investment X offers to pay you $5,500 per year for 9 years, whereas Investment Y offers to pay yo Year CF X CF Y PV @ 6% 1 4500 6600 X $30,607.62 2 4500 6600 Y $27,801.60 3 4500 6600 4 4500 6600 5 4500 6600 6 4500 7 4500 8 4500 9 4500 Problem 3 Fuente, Inc., has identified an investment project with the following cash flows. Year Cash Flow 6% 14% 21% 1 $1,060.00 $ 1,262.48 $ 1,570.44 $ 1,877.85 2 $1,290.00 $ 1,449.44 $ 1,676.48 $ 1,888.69 3 $1,510.00 $ 1,600.60 $ 1,721.40 $ 1,827.10 4 $2,250.00 $2,250.00 $2,250.00 $2,250.00 $ 6,562.52 $ 7,218.32 $ 7,843.64 Problem 4 An investment offers $7100 per year, with the first payment occurring one year from now. The re 20 45 70 Perpetuity
PV $75,217.50 $96,599.20 $100,538.76 $101,428.57 FV 0 0 0 0 N 20 45 70 infinite R 7% 7% 7% 7% PMT $ 7,100.00 $ 7,100.00 $ 7,100.00 $ 7,100.00 a) PV of 15 annual payments $75,217.50 b) PV of 40 annual payments $96,599.20 c) PV of 75 annual payments $100,538.76 d) PV of annual payments forever $101,428.57 Problem 5 If you put up $51,000 today in exchange for a 6.25 percent, 15-year annuity, what will the annua PV $ (51,000.00) FV $ - N 15 R 6.25% PMT $5,337.21 Problem 6 PV $307,110.81 FV $ - N 7 R 8.5% PMT $60,000.00 Problem 7 You plan to deposit $5,300 at the end of each of the next 20 years into an account paying 10.8 pe PV $0.00 PV $0.00 FV $332,560.16 FV $2,918,779.91 N 20 N 40 R 10.8% R 10.8% PMT $5,300.00 PMT $5,300.00 a) FV of 15 Deposits $332,560.16 b) FV of 30 Deposits $ 2,918,779.91 Problem 8 Your company will generate $60,000 in annual revenue each year for the next seven years from a rate is 8.50 percent, what is the present value?
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PV $0.00 FV $66,000.00 N 13 R 7.30% PMT $3,213.77 Problem 9 Prescott Bank offers you a five-year loan for $56,000 at an annual interest rate of 6.75 percent. W PV $56,000.00 FV $0.00 N 5 R 6.75% PMT $13,566.58 Problem 10 PV $0.00 FV $28,000.00 N infinity R 5.80% PMT $482,758.62 Problem 11 What is the future value of $2,000 in 20 years assuming an interest rate of 7.3 percent compound PV $2,000.00 FV $8,390.78 N 40 R 3.65% PMT $0.00 P/Y 2 Problem 12 Spartan Credit Bank is offering 5.7 percent compounded daily on its savings accounts. You depos 6 years 11 years 18 years PV ($5,200.00) ($5,200.00) ($5,200.00) You want to have $66,000 in your savings account 13 years from now, and you’re prepared to ma of each year. If the account pays 7.30 percent interest, what amount must you deposit each year The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and y return on this investment is 5.8 percent, how much will you pay for the policy?
FV $7,819.50 $10,985.64 $17,681.95 $7,819.50 N 2190 4015 6570 R 0.02% 0.02% 0.02% PMT $0.00 $0.00 $0.00 P/Y 365 365 365 Problem 13 An investment will pay you $36,000 in 12 years. If the appropriate discount rate is 6.3 percent co PV $20,772.61 FV $41,000.00 N 3650 R 0.02% PMT $0.00 P/Y 365 Problem 14 a) what rate should the shop report? APR 327.6% b) what is the effective annual rate? EAR 1711.09% Problem 15 a) What will your monthly payments be? Monthly Payment $1,849.12 b) What is the effective annual rate on this loan? Effective Annual Rate 7.66% Payment PV ($92,500.00) FV $0.00 N 60 R 0.62% PMT $1,849.12 P/Y 12 Problem 16 Big Dom’s Pawn Shop charges an interest rate of 27.3 percent per month on loans to its custome consumers You want to buy a new sports coupe for $78,500, and the finance office at the dealership has quo buy the car.
Months for account to be paid off 43.78 PV $15,500.00 FV $0.00 N 43.776370723 R 1.65% PMT ($500.00) P/Y 12 One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to charge 1.65 percent per month interest on the overdue balance. If the current balance is $15,500, how long will it take for the account to be paid off?
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ou $7,900 per year for 5 years. PV @ 16% X $20,729.45 Y $21,610.34 equired return is 7 percent.
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al cash flow be? ercent interest. a new information database. If the appropriate interest
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What will your annual loan payment be? ded semiannually? sit $4,100 today. ake equal annual deposits into the account at the end r? your heirs $28,000 per year forever. If the required
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ompounded daily, what is the present value? ers. Like all lenders, Big Dom must report an APR to oted you an APR of 6 percent for a 60 month loan to
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o a repayment schedule of $500 per month. You will
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Bonda are just annuities (a series of cash flows). So think about the basic PV=CF/(1+r) discoungint…… if interest rates, r, go up, then PV goes down. Financial asset prices are inversly related to interest rate c Problem 1 PV $908.10 coupon rate 0.073 FV 1000.00 N 15 R 8.4% PMT 73 P/Y 1 Problem 2 Par Value 1000 PV (870) % 87% FV 1000 coupon 0.046 N 17 YTM R 5.83% PMT 46 P/Y 1 Problem 3 PV (964) FV 1000 coupon 6.10% N 8 YTM R 6.70% PMT $61.04 P/Y 1 Even though most corporate bonds in the United States make coupon payments semiannually, bonds is coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to m paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond? A Japanese company has a bond outstanding that sells for 87 percent of its ¥100,000 par value. The bon annually and matures in 17 years. What is the yield to maturity of this bond Gabriele Enterprises has bonds on the market making annual payments, with eight years to maturity, a At this price, the bonds yield 6.7 percent. What must the coupon rate be on the bonds?
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Problem 4 PV $ 1,137.94 YTM 0.068 FV 1000 coupon rate 0.0850 N 24 13 year's remaining at 2 payments per year NOTE: Corr R 3.40% PMT $42.50 P/Y 2 Problem 5 PV $ (1,030.00) 103% FV 1000 0.091 N 26 15 R 8.71% PMT $45.50 P/Y 2 Problem 6 PV $ (1,069.00) ytm 0.08 FV 1000 N 39 19.5 R 4.00% PMT $43.52 coupon 8.70% P/Y 2 Problem 7 PV $ (1,080.00) 1.08 0.092 a) Current Yield FV 1000 0.008 b) YTM N 32 16 0.1 c) Eff. Ann. Yield R 0.104 Wesimann Co. issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The bonds make semia $1,000. If the YTM on these bonds is 6.8 percent, what is the current bond price? West Corp. issued 15-year bonds two years ago at a coupon rate of 9.1 percent. The bonds make semia sell for 103 percent of par value, what is the YTM? McConnell Corporation has bonds on the market with 19.5 years to maturity, a YTM of 8 percent, a par $1,069. The bonds make semiannual payments. What must the coupon rate be on these bonds? Workman Software has 9.2 percent coupon bonds on the market with 18 years to maturity. The bonds sell for 107.4 percent of par
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PMT $ 52.00 P/Y 2 Problem 8 PV $ (1,055.00) FV 1000 N 40 20 R 5.54% PMT $ 30.00 0.06 P/Y 2 Problem 9 PV $ (1,025.64) CY 9.75 $ 1,025.64 FV 1000 N 5.72 R 9.40% PMT $ 100.00 0.1 P/Y Problem 10 PV $ (1,124.60) 1.1246 a) YTM 5.05% FV 1000 b) CY 5.51% N 16 2034-2018 16 R 5.05% PMT $ 62.00 0.062 P/Y 1 Chamberlain Co. wants to issue new 20-year bonds for some much-needed expansion projects. The com bonds on the market that sell for $1,055, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Excey Corp. has 10 percent coupon bonds making annual payments with a YTM of 9.4 percent. The curr How many years do these bonds have left until they mature? Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspa $2,000 and the current date is April 19, 2018. Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s) IOU (IOU) 5.4 Apr 19, 2034 108.38 ?? 1,839
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changes. ssued elsewhere often have annual maturity, and a coupon rate of 6.5 percent nd has a coupon rate of 4.6 percent paid a par value of $1,000, and selling for $964.
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rect for already taken coupon 1 year ago 9.63% 9.42% 9.64% annual payments and have a par value of annual payments. If these bonds currently r value of $1,000, and a current price of make semiannual payments and currently
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0.054 mpany currently has 6 percent coupon rent yield on these bonds is 9.75 percent. aper. Assume the bond has a face value of
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Problem 1 Po = D1/(r-g) Dividend $ 1.15 Growth 7% Req'd Rate 12% Next Yr's Price $ 1.23 a) What is the current Stock Price? $ 24.61 b) What will the stock price be in 3 years? $ 30.15 c) What will the stock price be in 12 years? $ 55.43 Problem 2 Dividend $ 1.68 D1/SP+g Dividend Yiel 5.25% Growth r 6% Stock $ $ 32.00 Required Return 11.25% Problem 3 Dividend $ 3.26 Growth r 6.5% req'd r 15% Stock $ $ 38.35 Problem 4 Growth r 5.0% Div Yield 6.8% The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.15 per share on its stock. The divid constant rate of 7 percent per year indefinitely. Investors require a return of 12 percent on the com The next dividend payment by Savitz, Inc., will be $1.52 per share. The dividends are anticipated to percent forever. If the stock currently sells for $28 per share, what is the required return? Hudson Corporation will pay a dividend of $3.26 per share next year. The company pledges to incre per year indefinitely. If you require a return of 15 percent on your investment, how much will you p today? Grateful Eight Co. is expected to maintain a constant 5.8 percent growth rate in its dividends indefin dividend yield of 7.6 percent, what is the required return on the company’s stock?
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Required Return 11.80% Problem 5 Stock $ $ 65.00 D1/Po = g, thus both equal 7.5% Rate of r 15.00% Implied Div $ 4.88 Current Dividend $ 4.53 Problem 6 Constant Div $ 8.45 r 11% PV $54.61 FV 0 PMT $ 8.45 N 15 R 13% P/Y 1 Problem 7 Preferred is a perpetuity: PV = PMT/R PMT 6.75 Current $ 93 r 7.26% Problem 8 Suppose you know that a company’s stock currently sells for $65 per share and the required return also know that the total return on the stock is evenly divided between a capital gains yield and a div company’s policy to always maintain a constant growth rate in its dividends, what is the current div Burnett Corp. pays a constant $8.45 dividend on its stock. The company will maintain this dividend f then cease paying dividends forever. If the required return on this stock is 13 percent, what is the c Bedeker, Inc., has an issue of preferred stock outstanding that pays a $6.75 dividend every year in p sells for $93 per share, what is the required return?
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Dividend $ 2.80 Growth 4.0% Red, Inc. 8% $ 70.00 Yellow Corp 11% $ 40.00 Blue Co 14% $ 28.00 Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.20 next year. The growth r companies is 8 percent. The required return for each company’s stock is 5 percent, 11 percent, and is the stock price for each company?
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dends are expected to grow at a mpany's stock. maintain a growth rate of 6 ease its dividend by 6.5 percent pay for the company’s stock nitely. If the company has a
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on the stock is 15 percent. You vidend yield. If it’s the vidend per share? for the next 15 years and will current share price? perpetuity. If this issue currently
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rate in dividends for all three d 14 percent, respectively. What
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Problem 1 What is the payback period for the following set of cash flows? Year Cash Flow Payback: after 1 year $ (4,500) 0 $ (5,900) after 2 years $ (2,900) 1 $ 1,400 after 3 years $ (900) 2 1600 Year 4 0.60 3 2000 4 1500 Payback Period 3.60 years Problem 2 An investment project provides cash inflows of $645 per year for eight years Year Cash Flow $ 1,500 $ 3,400 0 675 Payback $ 150 $ 700 1 675 2 4 2 675 0.22 1.04 3 675 2.22 5.04 4 675 5 675 6 675 7 675 8 675 a) What is the project payback period if the initial cost is $1,550? b) What is the project payback period if the initial cost is $3,300? c) What is the project payback period if the initial cost is $5,400? Problem 3 Bronco, Inc., imposes a payback cutoff of three years for its international investment projects. Year Cash Flow (A) Cash Flow (B) 0 $ (64,000) $ (74,000) $ (7,000) $ (7,000) 1 $ 25,000 $ 17,000 0.30 0.03 2 $ 32,000 $ 20,000 2.30 3.04 3 $ 23,000 $ 30,000 4 $ 10,000 $ 234,000 Which project should the comp Problem 4
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An investment project has annual cash inflows of $4,000, $4,900, $6,100, and $5,300, for the next four y a) What is the discounted payback period for these cash flows if the initial cost is $6,700? b) What is the discounted payback period for these cash flows if the initial cost is $8,800? c) What is the discounted payback period for these cash flows if the initial cost is $11,800? Discount Rate 14% Year CF Discounted CF 6500 8600 11600 0 $ 3,800 $ 3,333.33 1.88 2.41 3.22 1 $ 4,700 $ 3,616.50 2 $ 5,900 $ 3,982.33 3 $ 5,100 $ 3,019.61 Problem 5 An investment project costs $10,000 and has annual cash flows of $2,950 for six years. a) What is the discounted payback period if the discount rate is zero percent? b) What is the discounted payback period if the discount rate is 4 percent? c) What is the discounted payback period if the discount rate is 21 percent? Year CF Disc CF (0%) Disc. CF (4%) Disc. CF (21%) 0 $ (10,000) $ (10,000) $ (10,000) $ (10,000) 1 $ 2,810 $ 2,810 $ 2,702 $ 2,322 2 $ 2,810 $ 2,810 $ 2,598 $ 1,919 3 $ 2,810 $ 2,810 $ 2,498 $ 1,586 4 $ 2,810 $ 2,810 $ 2,402 $ 1,311 5 $ 2,810 $ 2,810 $ 2,310 $ 1,083 6 $ 2,810 $ 2,810 $ 2,221 $ 895 $ (1,570) $ (2,202) $ (883) Payback -0.56 $ (0.92) 0 3.56 3.92 0 Problem 6 Year Cash Flow 0 $ (27,400) IRR 15.53% A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the followin If the required return is 18%, what is the IRR for this project?
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1 $ 11,400 2 $ 14,400 3 $ 10,400 Should the firm accept the project? No Problem 7 A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has th Year Cash Flow 0 $ (27,800) 11% 25% 1 $ 11,800 PV (inflows) $ 10,630.63 $ 9,440.00 2 $ 14,800 $ 12,012.01 $ 9,472.00 3 $ 10,800 $ 7,896.87 $ 5,529.60 $ 30,539.51 $ 24,441.85 Investment $ (27,800.00) $ (27,800) What is the NPV for the project if the return is 11%? $ 2,739.51 At a required return of 11%, should the firm accept this project? Yes What is the NPV for this project if the required return is 25%? $ (3,358.15) At a required return of 25%, should the firm accept this project? No Problem 8 A project has the following cash flows: IRR 20.44% Year Cash Flow 0 11 21 29 0 $ (17,100) $ (17,100) $ (17,100) $ (17,100) $ (17,100) 1 $ 7,800 $ 7,800 $ 7,027.03 $ 6,446.28 $ 6,046.51 2 $ 9,100 $ 9,100 $ 7,385.76 $ 6,215.42 $ 5,468.42 3 $ 7,600 $ 7,600 $ 5,557.05 $ 4,290.00 $ 3,540.34 $ 7,400.00 $ 2,869.85 $ (148.29) $ (2,044.73) a) What is the NPV at a discount rate of zero percent? $ 7,400.00 b) what is the NPV at a discount rate of 12%? $ 2,869.85 c) what is the NPV at a discount rate of 19% $ (148.29) d) what is the NPV at a discount rate of 28% $ (2,044.73)
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$ 5,600 $ 200 8 $ - 0.00 pany accept? A
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years, respectively. The discount rate is 13 percent. 1.88 2.41 3.22 ng cash flows:
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he following cash flows
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Problem 1 Opportunity cost of land Cost of Plant Required Grading Cash Flow Amount Problem 2 New product Sales 27,000 Increased Sales of motor home line 2,300 Loss in sales (erosion) (1,000) Annual Sales Problem 3 Sales $ 606,000.00 Variable Costs $ 266,640.00 44% Fixed Costs $ 136,500.00 Depreciation $ 53,750.00 EBIT $ 149,110.00 Taxes $ 37,277.50 25% Net Income $ 111,832.50 Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce ga warehouse and distribution site, but the company has since decided to rent these facilities from a c build its new manufacturing plant on this land; the plant will cost $12.3 million to build, and the sit amount to use as the initial investment in fixed assets when evaluating this project? Winnebagel Corp. currently sells 32,000 motor homes per year at $70,000 each, and 13,000 luxury out its product line; it hopes to sell 27,000 of these campers per year at $15,000 each. An independ its existing motor homes by 2,300 units per year and reduce the sales of its motor coaches by 1,000 A proposed new investment has projected sales of $606,000. Variable costs are 44 percent of sales tax rate of 25 percent. What is the projected net income?
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Problem 4 Fill in the missing numbers for the following income statement. Sales $ 658,400.00 Costs $ 419,400.00 Depreciation $ 98,600.00 EBIT $ 140,400.00 Taxes $ 30,888.00 22% Net Income $ 109,512.00 b) Calculate the OCF $ 208,112.00 c) Depreciation tax shield $ 21,692.00 Problem 5 Year Beginning Book Value 1 $ 974,000.00 2 $ 834,815.40 3 $ 596,282.80 4 $ 425,930.20 5 $ 304,277.60 6 $ 217,299.40 7 $ 130,418.60 8 $ 43,440.40 Problem 6 Asset 665,000 Use Life Years 9 Annual Depreciation 73,888.89 5-year accumulated dep 369,444.44 BV after 5 yrs 295,555.56 MV 137,000.00 A piece of newly purchased industrial equipment costs $974,000 and is classified as seven-year pro depreciation allowances and end-of-the-year book values for this equipment. Consider an asset that costs $665,000 and is depreciated straight-line to zero over its nine-year tax $137,000. If the relevant tax rate is 21 percent, what is the aftertax cash flow from the sale of this
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BV 295,555.56 Loss (158,555.56) 0.21 x tax rate @ .21 (33,296.67) Aftertax salvage value 170,296.67 Problem 7 OCF = (Sales-Costs)(1-tax rate) + (tax rate)(Depreciation) Sales 1,696,000 Costs 659,000 Tax Rate 0.23 Depreciation 2,440,000 What is the OCF 985,556.67 Problem 8 OCF = (Sales-Costs)(1-tax rate) + (tax rate)(Depreciation) Sales 1,740,000 Costs 650,000 Tax Rate 0.21 Depreciation 2,340,000 What is the OCF 1,024,900 period Rate Cost (2,340,000) NPV $164,563.21 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed as tax life, after which time it will be worthless. The project is estimated to generate $1,669,000 in an Quad Enterprises is considering a new three-year expansion project that requires an initial fixed as tax life, after which time it will be worthless. The project is estimated to generate $1,730,000 in an percent. What is the project’s NPV?
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Problem 9 Initial 2,340,000.00 nwc Sale of fixed asset 270000 Year CF 0 (2,650,000) (-Initial Investment -NWC) 1 1,024,900 OCF 2 1,024,900 OCF 3 1,548,200.00 CF+NWC+sale of asset+ (0-NWC)*tax Req'd n 0.1 PV (inflows) 931,727.27 847,024.79 1,163,185.57 Total 2,941,937.64 less (outflows) (2,650,000) NPV 291,937.64 Problem 10 Year Beginning Book Value MACRS (3 yrs) 1 $ 2,410,000.00 0.3333 2 $ 2,410,000.00 0.4445 3 $ 2,410,000.00 0.1481 Total BV in 3 Years $ 178,581.00 req'd n Selling Price 375,000.00 Tax Effect (45,176.37) Net Proceeds from Sale 329,823.63 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed as tax life. The project is estimated to generate $1,740,000 in annual sales, with costs of $650,000. Th market value of $270,000 at the end of the project Quad Enterprises is considering a new three-year expansion project that requires an initial fixed as project is estimated to generate $1,775,000 in annual sales, with costs of $672,000. The project req of $375,000 at the end of the project.
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OCF = (Sales-Costs)(1-tax rate) + (tax rate)(Depreciation) Year CF 0 (2,790,000) (-Initial Investment -NWC) 1 1,034,058.19 OCF 2 1,095,696.35 OCF 3 1,641,225.46 CF+NWC+sale of asset+ (0-NWC)*tax PV (inflows) 948,677.24 922,225.70 1,267,327.19 Total 3,138,230.12 Cost (2,790,000) NPV 348,230.12 Problem 11 Initial Investment $ 2,270,000.00 Sales $ 1,800,000.00 Costs $ 692,000.00 NWC $ 430,000.00 Market Value $ 450,000.00 Aftertax Salvage value = $ 346,500.00 OCF a) If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? Year 0 $ (2,700,000.00) 1 $ 1,375,260.00 2 $ 853,160.00 3 $ 1,629,660.00 b) If the required return is 10 percent, what is the project's NPV? NPV $ 479,714.95 Problem 12 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed as The project is estimated to generate $1,800,000 in annual sales, with costs of $692,000. The projec value of $450,000 at the end of the project.
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Annual Depreciation 97,000.00 Aftertax salvage value MV + (BV-MV)TC if BV is zero MV+(0-MV)TC MV(1-TC) Aftertax Salvage Value $ 54,510.00 OCF 136,500.00 PV INFLOWS $530,937.40 PLUS $ 54,275.77 Total PV Inflows $585,213.17 Less PV outflows (514,000.00) NPV $71,213.17 Dog Up! Franks is looking at a new sausage system with an installed cost of $455,000. This cost will can be scrapped for $57,000. The sausage system will save the firm $161,000 per year in pretax op is 25 percent and the discount rate is 13 percent, what is the NPV of this project?
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-337500 ($1,187,065.55) $ 37,364.13 $1.84 Explanation Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calcu First, we will calculate the annual depreciation of the new equipment. It will be: Annual depreciation = $455,000/5 Annual depreciation = $91,000 Now, we calculate the aftertax salvage value. The aftertax salvage value is the market price minus (or plus) th Aftertax salvage value = MV + (BV − MV)TC Very often the book value of the equipment is zero as it is in this case. If the book value is zero, the equation f Aftertax salvage value = MV + (0 − MV)TC Aftertax salvage value = MV(1 − TC) We will use this equation to find the aftertax salvage value since we know the book value is zero. So, the after Aftertax salvage value = $57,000(1 − .25) Aftertax salvage value = $42,750 Using the tax shield approach, we find the OCF for the project is: OCF = $161,000(1 − .25) + .25($91,000) OCF = $143,500 Now we can find the project NPV. Notice we include the NWC in the initial cash outlay. The recovery of the NW NPV = −$455,000 − 26,000 + $143,500(PVIFA13%,5) + [($42,750 + 26,000)/1.135] NPV = $61,037.43
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$ 5,100,000.00 $ 12,300,000.00 $ 750,000.00 $ 18,150,000.00 $ 15,000 $ 405,000,000 $ - $ 70,000 $ 161,000,000 $ 107,000 $ (107,000,000) $ 459,000,000 arden tools. The company bought some land six years ago for $4.8 million in anticipation of using it as a competitor instead. If the land were sold today, the company would net $5.1 million. The company wants to te requires $750,000 worth of grading before it is suitable for construction. What is the proper cash flow y motor coaches per year at $107,000 each. The company wants to introduce a new portable camper to fill dent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of 0 units per year. What is the amount to use as the annual sales figure when evaluating this project? s, and fixed costs are $136,500; depreciation is $53,750. Prepare a pro forma income statement assuming a
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MACRS (7 yrs) Depreciation Ending Book Value 0.1429 $ 139,184.60 $ 834,815.40 0.2449 $ 238,532.60 $ 596,282.80 0.1749 $ 170,352.60 $ 425,930.20 0.1249 $ 121,652.60 $ 304,277.60 0.0893 $ 86,978.20 $ 217,299.40 0.0892 $ 86,880.80 $ 130,418.60 0.0893 $ 86,978.20 $ 43,440.40 0.0446 $ 43,440.40 $ - operty under MACRS. The MACRS depreciation schedule is shown in Table 10.7. Calculate the annual x life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for asset?
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3 PV of OCF $2,504,563.21 0.11 less cost (2,340,000) sset investment of $2.35 million. The fixed asset will be depreciated straight-line to zero over its three-year nnual sales, with costs of $641,000. If the tax rate is 24 percent, what is the OCF for this project? sset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its three-year nnual sales, with costs of $640,000. The tax rate is 24 percent and the required return on the project is 13
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310,000.00 Sales 1,740,000 Costs 650,000 Tax Rate 0.21 Depreciation 2,340,000 What is the OCF 1,024,900 Depreciation Initial 2,410,000 $ 803,253.00 NWC 380,000 $ 1,071,245.00 Sale of Fixed Asset 375,000 $ 356,921.00 $ 2,231,419.00 Sales 1,775,000 0.09 Costs 672,000 Tax Rate 0.23 Depreciation 2,410,000 What is the OCF 1,034,077 sset investment of $2.34 million. The fixed asset will be depreciated straight-line to zero over its three-year he project requires an initial investment in net working capital of $310,000, and the fixed asset will have a sset investment of $2.41 million. The fixed asset falls into the three-year MACRS class (MACRS schedule). The quires an initial investment in net working capital of $380,000, and the fixed asset will have a market value
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sset investment of $2.27 million. The fixed asset qualifies for 100 percent bonus depreciation in the first year. ct requires an initial investment in net working capital of $430,000, and the fixed asset will have a market
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Cost 485,000.00 Depreciation 5 Scrapped 69,000.00 Savings 147,000.00 NWC 29,000.00 Tax Rate 21% Discount rate 9% l be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system perating costs, and the system requires an initial investment in net working capital of $26,000. If the tax rate
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ulation. he taxes on the sale of the equipment, so: for the aftertax salvage value becomes: rtax salvage value is: WC occurs in Year 5, along with the aftertax salvage value.
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Problem 1 Stock A 2,100.00 Stock B 3,100.00 Total 5,200.00 Exp. Return Wt. A 40.38% 10% 4.04% Wt. B 59.62% 13% 7.75% Total Exp. Return 11.79% Problem 2 Weight Exp. Returns Total Stock X 28% 8% 2.2400% Stock Y 20% 19% 3.8000% Stock Z 52% 15% 7.8000% Total Exp Return 13.8400% Problem 3 Exp Return 12.02% Investment 15,000 Stock X 14.00% x(14)+(1-x)(9.5)=12.02 Stock Y 9.50% 14X+9.5-9.5X=12.02 14X-9.5X=12.02-9.5 4.5X=2.52 $ Inv. In X $ 8,400.00 $ Inv. In Y $ 6,600.00 Thus, X = 56.00% 44.00% Problem 4 Consider the following information You own a portfolio that has $2,100 invested in Stock A and $3,100 invested in Stock B. If the expecte percent, respectively, what is the expected return on the portfolio? You own a portfolio that is 28 percent invested in Stock X, 20 percent in Stock Y, and 52 percent in St are 8 percent, 19 percent, and 15 percent, respectively. What is the expected return on the portfolio You have $15,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 1 percent. If your goal is to create a portfolio with an expected return of 12.02 percent, how much mon
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State of Economy Portfolio Return if State Occurs Recession 0.34 -0.19 Boom 0.66 0.27 Expected Return 11.36% Problem 5 Consider the following information State of Economy Portfolio Return if State Occurs Recession 0.23 -0.17 Normal 48.00% 13.00% Boom 29.00% 39.00% Expected Retur 13.64% Problem 6 Consider the following information Portfolio Return if State Occurs State of Economy Stock A Stock B Recession 15.00% 4.00% -15.00% Normal 61.00% 7.00% 14.00% Boom 24.00% 12.00% 31.00% Expected Retur 7.75% 13.73% A std Dev = 0.07% 2.61% B std Dev = 1.95% 13.98% Problem 7 Stock Weight Returns G 10.00% 7.00% J 50.00% 13.00% K 40.00% 15.00% Expected Retur 13.20% Problem 8 Prob of State of Economy Prob of State of Economy Prob of State of Economy A portfolio is invested 12 percent in Stock G, 52 percent in Stock J, and 36 percent in Stock K. The exp percent, and 20 percent, respectively. What is the portfolio's expected return?
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Consider the following Portfolio Return if State Occurs State of Economy Stock A Stock B Stock C Porfolio Boom 64.00% 10.00% 18.00% 36.00% 21.33% Bust 36.00% 10.00% 4.00% -7.00% 2.33% a) Expected Return 14.49% State of Economy Stock A Stock B Stock C Portfolio Boom 64.00% 10.00% 18.00% 36.00% 29.40% Bust 36.00% 10.00% 4.00% -7.00% -2.80% b) A 15.00% Expected Return 17.81% B 15.00% Variance 2.39% C 70.00% Problem 9 Consider the following Portfolio Return if State Occurs State of Economy Stock A Stock B Stock C Porfolio Boom 15.00% 38.00% 48.00% 28.00% 40.80% Good 45.00% 22.00% 19.00% 15.00% 18.76% Poor 0.3 -0.04 -0.09 -0.06 -7.08% Bust 0.1 -0.16 -0.34 -0.11 -24.16% a) Expected Return 10.02% A 20% B 60% b) Variance 0.03810359 C 20% c) Std. Dev. 19.520% Problem 10 beta 1.18 E (Rm) 12.00% Rf 4.00% CAPM 13.44% Prob of State of Economy Prob of State of Economy Prob of State of Economy A stock has a beta of 1.18, the expected return on the market is 12 percent, and the risk-free rate is 4 stock be?
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Problem 11 Exp. Return 10.80% Rf 4.00% Rm - Rf 5.00% Beta = ? 10.80 = 4.00 + beta(5.0) beta 1.36 xxxx Problem 12 A stock has an expected return of 10.5 percent, its beta is 1.15, and the risk-free rate is 5 percent. W Exp. Return 12.50% beta 1.35 Rf 5.50% Rm 7.00% CAPM equation Expected Return = Risk-Free Rate + (Beta x Market Risk Premium) 12.50 = 5.50 + 1.35(5.50 x Rm) 7 =7.425 x Rm 9.35 / 1.15 = Rm 4.45454545 0.9428 Rm 3.30% Problem 13 A stock has an expected return of 15.5 percent, its beta is 1.55, and the expected return on the mark Exp. Return 15.50% Beta 1.55 Rm 12.20% Rf = ? A stock has an expected return of 10.8 percent, the risk-free rate is 4 percent, and the market risk pr be?
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15.50 = Rf + 1.55(12.20-Rf) 15.5 = Rf+ 18.91 -1.55(Rf) -3.41 = -.55(Rf) Rf = 6.20
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4.5 is weighted invested in X is weight invested in Y ed returns on these stocks are 10 percent and 13 tock Z. The expected returns on these three stocks o? 14 percent and Stock Y with an expected return of 9.5 ney will you invest in Stock X and Stock Y?
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pected returns on these stocks are 10 percent, 16
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4 percent. What must the expected return on this
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What must the expected return on the market be? ket is 12.2 percent. What must the risk-free rate be? remium is 5 percent. What must the beta of this stock
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Problem 1 Do $ 3.30 g 7% Po $ 66.00 Re = D1/Po + g Re 12.14% Problem 2 beta 1.4 Rf 4.70% Rm 13.00% CAPM 16.32% is Re Problem 3 beta 1.4 Rm-Rf 7.00% Rf 4.40% Do $ 1.60 g 6.00% Po $ 32.00 First, CAPM 14.20% Second, Re = D1/Po+g 11.30% The Drogon Co. just issued a dividend of $3.30 per share on its common stock. The company is expect percent growth rate in its dividends indefinitely. If the stock sells for $66 a share, what is the company’s cost of equity? The Rhaegel Corporation’s common stock has a beta of 1.6. If the risk-free rate is 4.7 percent and the is 13 percent, what is the company’s cost of equity capital? Stock in Daenerys Industries has a beta of 1.6. The market risk premium is 6 percent, and T-bills are cu The company’s most recent dividend was $1.90 per share, and dividends are expected to grow at an a indefinitely. If the stock sells for $38 per share, what is your best estimate of the company’s cost of equity?
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Avg for Re = 12.750% Problem 4 Po $ 50.00 Arithmetic D 4 yrs ago $ 1.70 D 3 yrs ago $ 1.87 D 2 yrs ago $ 1.94 D 1 yr ago $ 2.05 Do $ 2.13 g1 10.00% g2 3.74% g3 5.67% g4 3.90% Arithmetic Average = 5.83% Re = 10.34% Geometric Average = 5.80% Re = 10.31% .25 = 4 yea b) What if you use the geometric average growth rate? Problem 5 Po = Pmt /R so, R = PMT/Po Div $ 5.05 Po $ 87.00 Rp = 5.80% Problem 6 PV (910.00) FV % 91% Suppose Stark Ltd. just issued a dividend of $2.13 per share on its common stock. The company paid d $1.94, and $2.05 per share in the last four years. a) If the stock currently sells for $50, what is your best estimate of the company’s cost of equity capita growth rate in dividends? Holdup Bank has an issue of preferred stock with a $5.05 stated dividend that just sold for $87 per sha preferred stock? Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 25 yea 91 percent of face value. The issue makes semiannual payments and has an embedded cost of 5 perce
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FV 1,000.00 N 50 R=? 5.68% BEFORE TAX PMT 25.00 P/Y 2 after tax Rd a) What is the company's pretax cost of debt? 5.68% b) If the tax rate is 24%, what is the aftertax cost of debt? 4.32% Problem 7 PV (1,080.00) FV % 108% FV 1,000.00 N 44 R=? 3.48% BEFORE TAX PMT 20.00 P/Y 2 after tax Rd a) What is the company's pretax cost of debt? 3.48% b) If the tax rate is 22%, what is the aftertax cost of debt? 2.71% c) which is more relevant Aftertax cost of debt Problem 8 Target Capital Structure 60% common, 5% preferred, 35% debt Re 13.00% Rp 6.00% Rd (after tax) 5.25% a) WACC = 10.36% b) on an after-tax asis, debt is cheaper than preferred Problem 9 Jiminy’s Cricket Farm issued a bond with 30 years to maturity and a semiannual coupon rate of 5 perc currently sells for 94 percent of its face value. The company’s tax rate is 22 percent. Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 5 is 21 percent.
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Target TD/TE 0.65 We = (1/1.65) Re 12.00% Wd = (.65/1.65) Rp 6.00% Tax Rate 23.00% a) WACC = 9.09% Problem 10 Maximum Cost After-tax Savings $ 1,860,000.00 g 2% TD/TE 0.8 Re 12.60% AT Rd 5.4% Use WACC + 3% WACC 9.40% Plus 3% 12.40% Treat this like a stock (growing perpetuity) PV $ 17,884,615.38 Lannister Manufacturing has a target debt-equity ratio of .65. Its cost of equity is 12 percent, and its c tax rate is 23 percent, what is the company’s WACC? Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $1.78 million at these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ra 11.8 percent, and an aftertax cost of debt of 4.6 percent. The cost-saving proposal is somewhat riskie firm undertakes; management uses the subjective approach and applies an adjustment factor of 3 pe such risky projects. What is the maximum initial cost the company would be willing to pay for the project? (Do not round enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,56
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ted to maintain a constant 6.8 e expected return on the market urrently yielding 5.5 percent. annual rate of 7 percent
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Average more appropriate dividends of $1.70, $1.87, al using the arithmetic average are. What is the bank’s cost of ars to maturity that is quoted at ent annually.
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cent 3 years ago. The bond d stock, and 35 percent debt. percent. The relevant tax rate
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cost of debt is 6 percent. If the the end of the first year, and atio of .80, a cost of equity of er than the usual project the ercent to the cost of capital for intermediate calculations and 67.)
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Assume the following relationships for the Caulder Corp.: Sales/Total assets 2.2x Return on assets (ROA) 6% Return on equity (ROE) 15% a. Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. % b. Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answer to two decimal places. %
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