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devry fin515 week 6 exam




Question;TCO D) A stock just paid a dividend of D0 = $1.50. The;required rate of return is rs = 10.1%, and the constant growth rate is g =;4.0%. What is the current stock price?;$23.11;$23.70;$24.31;$24.93;$25.57;Question 2. Question;(TCO D) If D1 = $1.50, g (which is constant) = 6.5%, and P0;= $56, what is the stock?s expected capital gains yield for the coming year?;6.50%;6.83%;7.17%;7.52%;7.90%;Comments;Question 3. Question;(TCO D) Molen Inc. has an outstanding issue of perpetual;preferred stock with an annual dividend of $7.50 per share. If the required;return on this preferred stock is 6.5%, at what price should the preferred;stock sell?;$104.27;$106.95;$109.69;$112.50;CORRECT $115.38;Question 4. Question;(TCO E) Bankston Corporation forecasts that if all of its;existing financial policies are followed, its proposed capital budget would be;so large that it would have to issue new common stock. Since new stock has a;higher cost than retained earnings, Bankston would like to avoid issuing new;stock. Which of the following actions would REDUCE its need to issue new common;stock?;Increase the dividend payout ratio for the;upcoming year.;Increase the percentage of debt in the target;capital structure.;Increase the proposed capital budget.;Reduce the amount of short-term bank debt in;order to increase the current ratio.;Reduce the percentage of debt in the target;capital structure.;Question 5. Question;(TCO E) If a typical U.S. company correctly estimates its;WACC at a given point in time and then uses that same cost of capital to;evaluate all projects for the next 10 years, then the firm will most likely;become riskier over time, but its intrinsic;value will be maximized.;become less risky over time, and this will;maximize its intrinsic value.;accept too many low-risk projects and too few;high-risk projects.;become more risky and also have an increasing;WACC. Its intrinsic value will not be maximized.;continue as before, because there is no reason;to expect its risk position or value to change over time as a result of its use;of a single cost of capital.;Question 6. Question;(TCO D) Assume that you are a consultant to Broske Inc., and;you have been provided with the following data: D1 = $0.67, P0 = $27.50, and g =;8.00% (constant). What is the cost of common from retained earnings based on;the DCF approach?;9.42%;9.91%;10.44%;10.96%;11.51%;Question 7. Question;(TCO F) Barry Company is considering a project that has the;following cash flow and WACC data. What is the project's NPV? Note that a;project's expected NPV can be negative, in which case it will be rejected.;WACC: 12.00%;Year;0 1 2 3 4 5;-----------------------------------------------------------------------;Cash flows;-$1,100 $400 $390;$380 $370 $360;$250.15;$277.94;$305.73;$336.31;$369.94;Question 8. Question;(TCO F) Maxwell Feed & Seed is considering a project;that has the following cash flow data. What is the project's IRR? Note that a;project's IRR can be less than the WACC (and even negative), in which case it;will be rejected.;Question 9. Question;(TCO F) Fernando Designs is considering a project that has;the following cash flow and WACC data. What is the project's discounted;payback?;WACC: 10.00%;Year 0 1 2 3;---------------------------------------------;Cash flows;-$900 $500 $500;$500;1.88 years;2.09 years;2.29 years;2.52 years;2.78 years;Payback = 2.09 years;- - - 2.09;Question 10. Question;(TCO H) Temple Corp. is considering a new project whose data;are shown below. The equipment that would be used has a three-year tax life;would be depreciated by the straight-line method over its three-year life, and;would have a zero salvage value. No new working capital would be required.;Revenues and other operating costs are expected to be constant over the;project?s three-year life. What is the project?s NPV?;Risk-adjusted WACC;Net investment cost (depreciable basis);Straight-line deprec. rate;Sales revenues, each year;Operating costs (excl. deprec.), each year;Tax rate 10.0%;$65,000;33.333%;$65,500;$25,000;35.0%;a. $15,740;b. $16,569;c. $17,441;d. $18,359;e. $19,325;Indicate your choice for your answer - a,b,c,d,e first and;then show your work/explain your answer so as to earn partial credit in the;event you selected the incorrect answer.


Paper#50623 | Written in 18-Jul-2015

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