1. The all equity cost of capital for a company is 15%, and the company has set a target debt to value ratio of 50%. The current cost of debt for a firm of this risk is 10% and the corporate tax rate is 34%. What?s the weighted average cost of capital (WACC) for the company? 2. A loan of $10,000 is issued at 15% interest. Interest on the loan is to be repaid annually for 5 years, and the non-amortized principal is due at the end of the fifth year. What?s the NPV of the loan if the company's tax rate is 34%. 3. A firm has a market value equal to its book value. Currently, the firm has excess cash of $500 and other assets of $9,500. Equity is worth $10,000. The firm has 250 shares of stock outstanding and net income of $1,400. What will the stock price per share be if the firm pays out its excess cash as a cash dividend? 4. A company is attempting to raise $5,000,000 in new equity with a rights offering. The subscription price will be $40 per share. The stock currently sells for $50 per share and there are 250,000 shares outstanding. How many rights are needed to buy a new share? 5. A firm is considering leasing a new system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%. What is the net present value (NPV) of the lease? 6. What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price: $48 Exercise price: $45 Time to expiration: 0.75 years Risk-free rate: 5% N(d1): 0.718891 N(d2): 0.641713 7. What?s the duration of a 2 year annual 10% bond that is selling at a par value of $1,000? 8. Firm A and Firm B are all-equity firms. Firm A has 1,750 shares outstanding at a market price of $20 a share. Firm B has 2,500 shares outstanding at a price of $28 a share. Firm B is acquiring Firm A for $36,000 in cash. The incremental value of the acquisition is $3,000. What is the net present value of acquiring Firm A to Firm B? 9. The management of Firm C has proposed to reorganize the company. The proposal is based on a going-concern value of $2.3 million. The proposed financial structure is $500,000 in new mortgage debt, $300,000 in subordinated debt and $1,500,000 in new equity. All creditors, both secured and unsecured, are owed $3 million dollars. Secured creditors have a mortgage lien for $2,000,000 on the book bindery. The corporate tax rate is 34%. How much should the secured creditors receive? 10. The management of Firm D has proposed to reorganize the firm. The proposal is based on a going-concern value of $2 million. The proposed financial structure is $750,000 in new mortgage debt, $250,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2.5 million dollars. Secured creditors have a mortgage lien for $1,500,000 on the factory. The corporate tax rate is 34%. How much should the unsecured creditors receive?
Paper#10223 | Written in 18-Jul-2015Price : $25