QUESTION 1Dixon Corp’s preferred stock does not mature (it is a “perpetual preferred”). Each share of preferred stock pays a fixed dividend of $5.15 per year, and is currently selling for $62. Estimate Dixon’s marginal cost of preferred equity. Dixon faces a marginal tax rate of 30%. 10.10% 12.04% 5.81% 7.07% 8.31% QUESTION 2Check the information provided for Terra Corp. The project’s cash flow for the last year is expected to be: $143,700 $123,700 $146,200 $149,200 $172,200 QUESTION 3Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal pre-tax cost of debt. Dixon faces a marginal tax rate of 30%. 5.10% 4.15% 6.22% 3.57% 2.55% QUESTION 4Check the information provided for Terra Corp. The project’s operating cash flow (OCF) for all years except the last year is expected to be: $54,267 $37,800 $21,250 $57,200 $62,700 QUESTION 5Check the information provided for Terra Corp. The rate of return or return on investment on this project is estimated to be: 12.92% 7.72% 7.41% 13.11% 10.07% QUESTION 6Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal post-tax cost of debt. Dixon faces a marginal tax rate of 30%. 3.06% 4.15% 4.35% 3.57% 2.90% QUESTION 7You may want to work the other FOUR Dixon Corp problems before trying this one: If Dixon Corp plans to raise 25% of any new financing with debt, 15% with preferred equity, and 60% with common equity, estimate Dixon's weighted average cost of capital. Dixon's marginal tax rate is 30%. 2.78% 8.81% 2.66% 7.97% 8.34% QUESTION 8Dixon Corp has announced a per-share dividend of $5.25 for the year just ended. The company’s earnings and dividends per share are expected to grow at a steady rate of 4.50% for the foreseeable future. Each share of the company’s common stock is currently trading for $94. Estimate Dixon’s marginal cost of common equity. Dixon faces a marginal tax rate of 30%. 5.84% 10.34% 7.24% 13.54% 9.79% QUESTION 9Check the information provided for Terra Corp. The net present value of the project is estimated to be: $34,774 $37,694 $23,976 $16,353 $1,337 QUESTION 10Information for Terra Corp. Terra Corp is considering the purchase of a machine that is expected to cost $180,000. The machine will require an additional $40,000 to have it shipped, modified, and installed. The purchase of this machine is expected to require additional working capital of $20,000 upfront, which will be liquidated when the machine is sold off. Terra expects to use the machine for 4 years, and then sell it for $95,000. The machine will be fully depreciated over the four years, at a constant rate. In each of the four years, Terra’s revenues are expected to be $85,000 higher than they would be without the machine. Annual operating costs (not including depreciation) will also be higher, however, to the extent of $19,000. The firm pays a 30% rate in taxes, and its cost of capital is 7.5%. The initial outflow of cash for the proposed project is expected to be: $220,000 $200,000 $180,000 $190,000 $240,000

Hi there. Thank you for the question. Post has multiple questions. As per company guidelines expert…

Answered: Dixon Corp’s preferred stock does not…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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QUESTION 1

Dixon Corp’s preferred stock does not mature (it is a “perpetual preferred”). Each share of preferred stock pays a fixed dividend of $5.15 per year, and is currently selling for $62. Estimate Dixon’s marginal cost of preferred equity. Dixon faces a marginal tax rate of 30%.

10.10%

12.04%

5.81%

7.07%

8.31%

QUESTION 2

Check the information provided for Terra Corp. The project’s cash flow for the last year is expected to be:

$143,700

$123,700

$146,200

$149,200

$172,200

QUESTION 3

Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal pre-tax cost of debt. Dixon faces a marginal tax rate of 30%.

5.10%

4.15%

6.22%

3.57%

2.55%

QUESTION 4

Check the information provided for Terra Corp. The project’s operating cash flow (OCF) for all years except the last year is expected to be:

$54,267

$37,800

$21,250

$57,200

$62,700

QUESTION 5

Check the information provided for Terra Corp. The rate of return or return on investment on this project is estimated to be:

12.92%

7.72%

7.41%

13.11%

10.07%

QUESTION 6

Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal post-tax cost of debt. Dixon faces a marginal tax rate of 30%.

3.06%

4.15%

4.35%

3.57%

2.90%

QUESTION 7

You may want to work the other FOUR Dixon Corp problems before trying this one: If Dixon Corp plans to raise 25% of any new financing with debt, 15% with preferred equity, and 60% with common equity, estimate Dixon's weighted average cost of capital. Dixon's marginal tax rate is 30%.

2.78%

8.81%

2.66%

7.97%

8.34%

QUESTION 8

Dixon Corp has announced a per-share dividend of $5.25 for the year just ended. The company’s earnings and dividends per share are expected to grow at a steady rate of 4.50% for the foreseeable future. Each share of the company’s common stock is currently trading for $94. Estimate Dixon’s marginal cost of common equity. Dixon faces a marginal tax rate of 30%.

5.84%

10.34%

7.24%

13.54%

9.79%

QUESTION 9

Check the information provided for Terra Corp. The net present value of the project is estimated to be:

$34,774

$37,694

$23,976

$16,353

$1,337

QUESTION 10

Information for Terra Corp. Terra Corp is considering the purchase of a machine that is expected to cost $180,000. The machine will require an additional $40,000 to have it shipped, modified, and installed. The purchase of this machine is expected to require additional working capital of $20,000 upfront, which will be liquidated when the machine is sold off. Terra expects to use the machine for 4 years, and then sell it for $95,000. The machine will be fully depreciated over the four years, at a constant rate. In each of the four years, Terra’s revenues are expected to be $85,000 higher than they would be without the machine. Annual operating costs (not including depreciation) will also be higher, however, to the extent of $19,000. The firm pays a 30% rate in taxes, and its cost of capital is 7.5%. The initial outflow of cash for the proposed project is expected to be:

$220,000

$200,000

$180,000

$190,000

$240,000

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