Assignment 4A
teacup2013assignment_4.xlsx
Instructions
Instructions | ||||||
NAME: | ||||||
To complete the homework assignments in the templates provided: | ||||||
1. | The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases. | |||||
2. | You will enter the required information into the shaded cells. | |||||
3. | The cells are coded: | |||||
a) T requires a text answer. Essay questions require references; use the textbook. | ||||||
b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary. | ||||||
c) F requires a number only. In some problems, a “Step 1” is added to help you solve the problem. | ||||||
d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value). | ||||||
4. | Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7. | |||||
P9-2
Problem 9-2 | |||||
A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company’s common stock is .5. | |||||
Risk Free Debt | Interest Rate | Market Risk Premium | Beta | Taxes | |
40% | 10% | 8% | 0.5 | 35% | |
a. What is the company cost of capital? | |||||
b. What is the after-tax WACC, assuming that the company pays tax at a 35% rate? | |||||
Answers: | |||||
Step 1: | |||||
r(d)= | 10% | ||||
r(e)= | C | ||||
D/V | C | TIP: D + E = V | |||
E/V | C | ||||
Step 2: | |||||
a. | Formula (in words) | Calculation | |||
Cost of Capital | T | C | |||
b. | WACC | T | C | ||
Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
Principles of Corporate Finance, Concise, 2nd Edition
P10-14
Problem 10-14 | |||||
Suppose that the expected variable costs of Otobai’s project are ¥33 billion a year and that fixed costs are zero. a. How does this change the degree of operating leverage (DOL)? b. Now recompute the operating leverage assuming that the entire ¥33 billion of costs are fixed. | |||||
Answers: | |||||
See page 243, Table 10.1, of textbook for additional information. Copy is also provided below. | |||||
DOL Formula | Fixed Costs | Calculation | |||
a. | 1+(Fixed cost + depreciation)/ operating profit | 37.50 | C | ||
b. | 1+(Fixed cost + depreciation)/ operating profit | 37.50 | C | ||
Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.
Principles of Corporate Finance, Concise, 2nd Edition