FINC 330 6385 Business Finance (2168) Final Examination

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WACC

 

Question 1

 

1 / 1 point

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%.

Calculate the firm's WACC adjusted for taxes using the market information in the table.

Round the answers to two decimal places in percentage form.  (Write the percentage sign in the "units" box)

 

The Number of Securities Outstanding

Selling price

The Required Rate of Return

Bonds

1,407

$1,191

11.18%

Preferred Stocks

5,418

$54.71

16.81%

Common Stocks

1,383

$66.58

12.81%

 

 

Question 2

 

1 / 1 point

Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company’s project, assuming the company’s cost of capital is 8.42 percent. The initial outlay for the project is $307,089. The project will produce the following after-tax cash inflows of

Year 1: 126,050

Year 2: 91,170

Year 3: 28,946

Year 4: 194,652

Round the answer to two decimal places.

 

Question 3

 

1 / 1 point

What is the yield to call of a 30-year to maturity bond that pays a coupon rate of 10.65 percent per year, has a $1,000 par value, and is currently priced at $945? The bond can be called back in 4 years at a call price $1,086. Assume annual coupon payments.

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

You should use Excel or financial calculator.

 

Question 4

 

1 / 1 point

Find the modified internal rate of return (MIRR) for the following series of future cash flows if the company is able to reinvest cash flows received from the project at an annual rate of 11.87 percent.The initial outlay is $390,200.

Year 1: $158,700

Year 2: $164,600

Year 3: $167,700

Year 4: $133,700

Year 5: $184,100

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

Cost of new equity Gordon Model

 

Question 5

 

1 / 1 point

Calculate the cost of new common equity financing of stock R using Gordon Model

Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)

 

 

Last Year Dividend

Growth Rate of Dividends

Selling Price of Stock

Floatation Costs

Cost of Common Equity

Stock R

$2.82

2.8%

$67.38

$2.50

?


.

Yield to Maturity of bond, annually

 

Question 6

 

1 / 1 point

What is the yield to maturity of a 29-year bond that pays a coupon rate of 12.61 percent per year, has a $1,000 par value, and is currently priced at $1,417? Assume annual coupon payments.

Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box).

You should use Excel or financial calculator.

Value of preferred stock, expected rate of return on preferred stock, Required rate of return using CAPM

 

Question 7

 

1 / 1 point

Giant Co. has just issued preferred stock with a par value of $100 and an annual dividend rate of 9.08 percent. If your required rate of return is 8.34 percent, how much will you be willing to pay for one share of this preferred stock?

Round the answer to two decimal places.

Payback period, discounted payback period

 

Question 8

 

1 / 1 point

Find the Discounted Payback period for the following project. The discount rate is 10%

 

Project X

Initial Outlay

$17,559

Year 1

$5,049

Year 2

$5,966

Year 3

$5,776

Year 4

$8,719

Round the answer to two decimal places.

Value (price) of bond, annually

 

Question 9

 

1 / 1 point

Fresh Water, Inc. sold an issue of 18-year $1,000 par value bonds to the public. The bonds have a 9.22 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Water, Inc. bonds is 8.25 percent. What is the current market price of the bonds?

Round the answer to two decimal places.

Yield to Maturity of bond, semi-annually

 

Question 10

 

1 / 1 point

A few years ago, Spider Web, Inc. issued bonds with a 11.42 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $742, and will mature in 22 years. What would the annual yield to maturity be on the bond if you purchased the bond today?

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

You should use Excel or financial calculator.

IRR

 

Question 11

 

1 / 1 point

Find the internal rate of return (IRR) for the following series of future cash flows. The initial outlay is $744,700.

Year 1: 180,700

Year 2: 179,900

Year 3: 143,100

Year 4: 188,800

Year 5: 145,700

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

You should use Excel or financial calculator.

 

Management of Current Assets

 

Question 12

 

1 / 1 point

Cheesburger and Taco Company purchases 17,596 boxes of cheese each year. It costs $28 to place and ship each order and $6.80 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.

 How many orders will be placed each year? Round the answer to the whole number

Value (price) of zero-coupon bond, semi-annually

 

Question 13

 

1 / 1 point

Black Water Corp. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 22 years and a yield to maturity of 14.62 percent, compounded annually. What is the current price of the bond?

Round the answer to two decimal places.

Cost of debt A/T, B/T

 

Question 14

 

1 / 1 point

Black Hill Inc. sells $100 million worth of 13-year to maturity 11.39% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $973 for each $1,000 bond. What is the before-tax cost of capital for this debt financing?

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

You should use Excel or financial calculator.

Beta portfolio

 

Question 15

 

1 / 1 point

John invested the following amounts in three stocks:

Security

Investment

Beta

Stock A

$456,215

1.65

Stock B

$550,513

1.84

Stock C

$524,507

2.11

Calculate the beta portfolio.

Round the answers to two decimal places.

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PI

 

Question 16

 

1 / 1 point

Find the profitability index (PI) for the following series of future cash flows, assuming the company’s cost of capital is 8.33 percent. The initial outlay is $483,373.

Year 1: $185,753

Year 2: $189,885

Year 3: $123,634

Year 4: $132,577

Year 5: $133,678

Round the answer to two decimal places.

Value (price) of bond, semi-annually

 

Question 17

 

1 / 1 point

14 years ago, Delicious Mills, Inc. issued 30-year to maturity bonds that had a 9.32 percent annual coupon rate, paid semiannually. The bonds had a $1,000 face value. Since then, interest rates in general have changed and the yield to maturity on the Delicious Mills bonds is now 9.39 percent. Given this information, what is the price today for a Delicious Mills bond?

Round the answer to two decimal places.

Portfolio expected return

 

Question 18

 

1 / 1 point

Jack holds a portfolio with the following securities:

Security

Investment

Return

Stock A

568,880

       7.1%

Stock B

507,031

       16.5%

Stock C

392,412

       7.4%

Calculate the expected return of portfolio. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)

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Project Initial Outlay, Operating cash flow, After-Tax cash flow from selling the old asset

 

Question 19

 

1 / 1 point

El Dorado Storage has the following projections for Year 1 of a capital budgeting project.

Sales $299,666

Variable costs $122,928

Fixed costs adn selling, general and administrative expenses $12,822

Depreciation Expense $26,980

Tax Rate 35%

Calculate the operating cash flow for Year 1. Round the answer to two decimals

Bonds quotes, bond current yield

 

Question 20

 

1 / 1 point

For a bond selling for $809, with a par value of $1,000 and a coupon rate of 12.49 percent, the current yield is _____.

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

HPR, APR, EAR

 

Question 21

 

1 / 1 point

Sarah purchased 100 shares of General Electric stock at a price of $58.65 three months ago. She sold all stocks today for $65.18. During the year the stock paid dividends of $2.31 per share. What is Sarah’s holding period return

Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)

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Cost of pr. stock, cost of retained earnings, cost of common equity using CAPM

 

Question 22

 

1 / 1 point

The Yo-Yo Corporation tries to determine the appropriate cost for retained earnings to be used in capital budgeting analysis. The firm’s beta is 1.25. The rate on six-month T-bills is 3.41%, and the return on the S&P 500 index is 9.57%. What is the appropriate cost for retained earnings in determining the firm’s cost of capital?

Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box).

Operating, Financial, and Total Leverage

 

Question 23

 

1 / 1 point

La Cucaracha Pest Control, Inc. is reviewing its financial condition. The firm's operating leverage is 2.78. The firm’s financial leverage was of 2.99. What is the firm’s degree of combined (total) leverage of La Cucaracha Pest Control, Inc. ?

Expected return on stock using probabilities

 

Question 24

 

1 / 1 point

Calculate the expected return on stock of Alfa Inc. :

State of the economy

Probability of the states

Percentage returns

Economic recession

60%

4.2%

Steady economic growth

14%

5.3%

Boom

Please calculate it

18.2%

Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)

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Gordon Model - value of the stock, expected rate of return; one year holding period

 

Question 25

 

1 / 1 point

The last dividend of Delta, Inc. was $3.06, the growth rate of dividends is expected to be 5.64 percent, and the required rate of return on this stock is 8.39 percent. What is the stock price according to the constant growth dividend model?

Round the answer to two decimal places.

 

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