Details of this Paper

1. Use the following information for a firm. Ta...

Description

Solution

Question

1. Use the following information for a firm. Target capital structure = 40% debt and 60% equity Cost of debt = 8% Cost of equity = 12% Tax rate = 40% 1) Find the firm's WACC. 2) As a manager, you consider the following project. Project X that costs \$900,000 is expected to produce \$400,000 per year for 3 years. Is Project X acceptable? Why? Assume that Project X is as risky as the firm's existing assets. 2. Lulong company's 2012 sales increase by 20% over 2011 sales. Use the following information. 2011 sales = \$2 million 2011 Fixed assets = \$400,000 The company's fixed assets were used to only 70% of capacity during 2011. What is the required level of fixed assets to be used in the forecasted 2012 balance sheet? 3.Consider two mutually exclusive projects, A and B. Project A that costs \$1,000 is expected to generate \$800 per year for 2 years. Project B that costs \$8,000 is expected to generate \$5,000 per year for 2 years. Both project's cost of capital is 6%. 1) Find the IRR of each project. 2) Find the NPV of each project. 3) Find the MIRR of each project. 4) Which project should be chosen? Why? 4. Today, a firm just paid a \$1 dividend per share. The firm's dividend will grow at a rate of 15% per year for the next 3 years and thereafter at a constant rate of 4%. The firm's stock has a beta of 0.8. The risk-free rate is 3% and the market risk premium is 8%. What is your estimate of the stock price next year (YEAR 1)? 5. Suppose that you buy a stock at \$30 and its put option at \$3 at the same time. The put option has a strike price of \$26. 1) Find the put option's time value. 2) If the stock price decreases to \$22, what is your total net profit from both stock and option positions?

Paper#13666 | Written in 18-Jul-2015

Price : \$25