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Corporate Finance homework




Question;Corporate Finance homework:1. A bond will sell at a discount (below par value) if:a. The market value of the bond is less than the present value of the discount rate of the bond.b. Investor's current required rate of return is above the coupon rate of the bond.c. Current market interest rates are moving in the same direction as bond values.d. The economy is booming.2. Butler Corp paid a dividend today of $5 per share (D = $5). The dividend is expected to grow at a constant rate of 6.5% per year.If Butler Corp stock is selling for $50.00 per share, the stockholders' expected rate of return isa. 16.80%b. 17.55%c. 15.49%d. 17.15%3. For a typical corporation, which of the following capital structures will result in the lowest weighted average cost of capital?a. 50% debt, 10% preferred stock, 40% common equityb. 40% debt, 20% preferred stock, 40% common equityc. 60% debt, 15% preferred stock, 25% common equityd. 60% debt, 10% preferred stock, 30% common equity4. Given the following information on S & G Inc.'s capital structure, compute the company's weighted average cost of capital.Type of CapitalPercent of Capital StructureBonds40%Preferred Stock5%Common Stock (Internal Only)55%Before-Tax Component Cost7.5%11%15%The company's marginal tax rate is 40%a. 10%b. 10.6%c. 7.1%d. 13.3%5. A machine that costs $1,500,000 has a 3 - year life. It will generate after tax annual cash flows of $700,000 at the end of each year.It will be salvaged for $200,000 at the end of year 3. If your required rate of return for the project is 13%, what is the NPV of this investment?a. $338,395b. $400,000c. $600,000d. $291,4176. Initial Outlay$4,000,000Cash Flow in Period1234$1,546,170 $1,546,170$1,546,170$1,546,170The Internal Rate of Return (to nearest whole percent) is:a. 20%b. 10%c. 24%d. 18%7. Your company is considering a project with the following cash flows:Initial Outlay = $3,000,000Cash Flows Year 1 - 8 = $547,000Compute the internal rate of return on the project.a. 8.95%b. 6.38%c. 12.34%d. 9.25%8. You are considering investing in a project with the following year - end after - tax cash flows:Year 1:$57,000Year 2:$72,000Year 3:$78,000If the initial outlay for the project is $185,000, compute the project's internal rate of return.a. 3.98%b. 11.89%c. 5.54%d. 14.74%9. Your firm is considering an investment that will cost $750,000 today. The investment will produce cash flows of $250,000 in year 1, $300,000in years 2 through 4, and $100,000 in year 5. What is the investment's discounted payback period if the required rate of return is 10%?a. 2.33 yearsb. 3.33 yearsc. 2.67 yearsd. 3.16 years10. An assest with an original cost of $100,000 and a current book value of $20,000 is sold for $50,000 as part of a capital budgeting project. Thecompany has a tax rate of 30%. What is the after-tax cash flow derived from the sale fo the asset?a. $50,000b. $20,000c. $41,000d. $6,00011. Bob's Baked Goods Company reported the following income statement for 2009:Sales$2,500,000Variable Costs900,000Fixed Operating Costs700,000EBIT900,000Interest Expense200,000EBT700,000Taxes (30%)210,000Net Income$490,000Earnings Per Share$4.90If Bob's sales next year increase by 20%, Bob's EBIT will increase:a. 20%, showing no financial leverageb. over 35%, due to operating leverage and financial leveragec. over 35%, due to operating leveraged. 20%, showing no operating leverage


Paper#47600 | Written in 18-Jul-2015

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