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Finance Problems

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Question;Please only complete work in Word and transfer anything from;Excel right into this Word document.;1. Roentgen Company has the following capital;structure.;Bonds with face amount $40 million, coupon 7%, selling at par;Bonds with face value $50 million, coupon 8%, 10 years to;maturity, selling at 106;6 million shares of stock, priced at $55 per share, with?;= 1.29.;The risk-free rate is 5% and the expected return on the market;is 13%. The tax rate of Aberdeen is 33%. Find the WACC of Aberdeen.;2. The following table gives the information about two companies;where the debt and equity are in millions of dollars.;Company;Debt;Equity;?;Cost of debt;Tax rate;Business;Lorentz Airline;$117;$351;1.65;9%;33%;Airline;Zeeman Hotels;$ 15;$ 60;1.55;8%;32%;Hotels;The risk-free rate is 4.4% and the expected return on the market;12%. Lorentz Airline wants to buy a hotel using its existing capital. Find the;required rate of return on the acquisition.;3. Becquerel Company has a total value of $76 million. Its stock;sells at $33 a share. At present, it has a loan of $12 million at 7% interest.;It needs $4 million in additional capital. It can get the financing by selling;125,000 shares of stock at $32 (net) per share, or by borrowing the money at;7.5% interest. The expected EBIT after the new financing is $7 million, with a;standard deviation of $3 million. Which method of financing will maximize its;EPS? What is the probability that you have made the right choice?;4. Curie Company needs a new machine, which it can;depreciate completely on a straight-line basis over a period of 4 years.;Alternately, it can lease the machine for four years, paying $12,500 in lease;payments in advance each year and claiming the tax benefit at the end of the;year. The tax rate of Paisley is 32% and it can borrow money at 10% interest;rate. Calculate the purchase price of the machine, which will equalize the cost;of leasing to the cost of buying.;5. Lord Rayleigh has bought a house for $350,000, of which $50,000;is the value of the land. Livingston expects that the value of the property;will increase at the compound rate of 5% per year. He will rent the house for;the next six years and then sell it. He will depreciate the house uniformly;over 24 years. The income tax rate of Rayleigh is 32%, and the risk-adjusted;discount rate is 11%. The annual expenses on the property (real estate taxes;maintenance, etc.) are $9000, realized at the end of each year. Find the amount;of rent that Rayleigh must collect at the end of each year to break even.

 

Paper#49875 | Written in 18-Jul-2015

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