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FIN370 Financial Excel Problems




Question;Question-1;Templeton Extended Care Facilities Inc is considering the acquisition;of a chain of cemeteries for $400 million. since the primary asset of this;business is real estate, Templeton's management has determined that they will;be able to borrow the majority of the money needed to buy the business. The;current owners have no debt financing but Templeton plans to borrow $300 million;and invest only $100 million in equity in the acquisition. What weights should;Templeton use in computing the WACC for this acquisition? Round to one decimal;place.;The appropriate weight of debt Wd is;The appropriate weight of common equity Wcs is;Question-2;2). Compute the cost of capital for the firm for the following;a). A bond that has a $1,000 par value (face value) and a contract or coupon;interest rate of 10.9%. The bonds have a current market value of $1,125 and;will mature in 10 years. The form's marginal tax rate is 34%.;aa). Theafter-tax cost of debt is _% (round to two decimals places);b). A new common stock issue that paid a $1.78 dividend last year. The firm's;dividends are expected to continue to grow at 7.6% per year forever. The price;of the firm's common stock is now $27.29.;bb). The cost of common equity is _% (round to two decimal places);c). A preferred stock that sells for $146 pays a dividend of 8.2 percent and;has a $100 par value.;cc). The cost of the preferred stock is _% (round to two decimal places);d). A bond selling to yield 11.8% where the form's tax rate is 34%.;dd). After tax cost of debt is _% (round to two decimal places);Question-3;(Cost of Preferred Stock) The preferred stock of Gator;Industries sells for $35.89 and pays $2.76 per year in dividends. What is the cost of preferred stock;financing? If Gator were to issue 521,000 more preferred shares just like the;ones it currently has outstanding, it could sell them for $35.89 a share but;would incur flotation costs of $2.88 per share. what are the flotation costs;for issuing the preferred shares and how should this cost be incorporated into;the NPV of the project being financed?;Question-4;(Cost of Debt) The Walgren Corporation is;contemplating a new investment to be finance using one-third from debt.;The firm could sell new $1,000 par value bonds with a 15-year maturity at a;price of $947 that carry a coupon interest rate is 12.7 % that is paid;semiannually, and the bonds would mature in fifteen years. If the company;is in a 34% tax bracket, what is the after-tax cost of capital to Walgren for;bonds?;Question-5;(Cost of Debt) Gillian Stationery Corporation;needs to raise $600,000 to improve its manufacturing plant. It has;decided to issue a $1,000 par value bond with a coupon rate of 8% with interest;paid semiannually and a 10-year;maturity. If the investors require a 10% rate of return;a.;Compute the market value of the bonds.;b. How many;bonds will the firm have to issue to receive the needed funds?;c. What;is the firm?s after-tax cost of debt if the firm?s tax rate is 34 percent?;Question-6;(Weighted average cost of capital) As a;consultant to GBH Skiwear, you have beenasked;to compute the appropriate discount rate to use in the evaluation of the;purchase of anew warehouse facility. You have;determined the market value of the firm?s current capitalstructure (which the firm considers to be its;target mix of financing sources) as follows;Source of Capital Market Value;Bonds $530,000;Preferred stock $120,000;Common stock $450,000;To finance the purchase, GBH will sell 20-year bonds;with a $1,000 par value paying7.9% per year;at the market price of $958. Preferred stock paying a $2.52 dividend can besold for $35.23. Common stock for GBH is currently;selling for $50.04 per share. The firmpaid a;$4.05 dividend last year and expects dividends to continue growing at a rate of 3.9% per year into the indefinite future. The firm?s;marginal tax rate is 34%. Whatdiscount rate;should you use to evaluate the warehouse project?;Question-7;Lowe?s Companies, Inc. (LOW) and its subsidiaries;operate as a home improvement retailer in the United States and Canada. As of;February 1, 2008, it operated 1,534 stores in 50 states and Canada. The;company?s balance sheet for February 1, 2008, included the following sources of;financing;In Thousands of Dollars Financial Structure;Liabilities;Current liabilities;Accounts payable ?????????.. $ 4,137,000;Short-term/current debt ???????. 1,104,000;Other current liabilities ???????. 2,510,000;Total current liabilities ???????. $ 7,751,000;Long-term debt ?????????? 5,576,000;Other long-term liabilities ?????? 670,000;Long-term liabilities ????????. $ 6,246,000;Stockholder equity ????????.. $16,098,000;Total ?????????????? $30,095,000;a. Calculate the values of Lowe?s debt ratio and;interest-bearing debt ratio.;b. If the market value of Lowe?s common equity is $35.86;billion and Lowe?s has no excess cash, what is the firm?s;debt-to-enterprise-value ratio?;Question-8;(Computing interest tax savings) Dharma Supply has;earnings before interest and taxes (EBIT) of $511,000, interest expenses of $323,000;and faces a corporate tax rate of 34 percent.;a. What is Dharma Supply's Net Income?;b. what would dharmas net income be if it didnt have any;debt?;c. what are the firms interest tax savings?;Question-9;You have developed the following pro forma income statement;for your corporation.;It represents the most recent years operations, which ended yesterday. Your;supervisor in the controllers office has just handed you a memorandum asking;for written responses to the following questions;a. If Sales Should increase by 20%, by what percent would earnings before;interest and taxes and net income increase?;b. If sales should decrease by 20% by what percent would earnings before;interest and taxes and net income decrease?;c. If the firm were to reduce its reliance on debt financing such that;interest expense were cut in half, how would this affect your answers to parts;A and B?;Question-10;(Capital Asset Pricing Model) CSB, Inc has a beta of 0.765.;If the expected market return is 10.5 percent and the risk free rate is 3.5;percent, what is the appropriate expected return of CSB(using the CAPM)?;Question-11;(Capital Asset Pricing Model) The expected return for the;general market is 10.5 percent, and the risk premium in the market is 7.0%.;Tasaco, LBM, and Exxos have betas of 0.828, 0.612 and 0.509, respectively. What;are the corresponding required rates of return for the three securities?;Question-12;James Fromholtz is considering whether to invest in a newly;formed investment fund. The fund?s investment objective is to acquire home;mortgage securities at what it hopes will be bargain prices. The fund sponsor;has suggested to James that the fund?s performance will hinge on how the;national economy performs in the coming year. Specifically, he suggested the;following possible outcomes;a. Based on these potential outcomes, what is your estimate of the expected;rate of return from this investment opportunity?;b. Would you be interested in making such an investment? Note that you lose all;your money in one year if the economy collapses into the worst state or you;double your money if the economy enters into a rapid expansion.;c. Would you be interested in making such an investment?


Paper#48009 | Written in 18-Jul-2015

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