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Question;Wolfpack Multimedia follows a strict;residual distribution policy (with all distributions;in the form of dividends). Wolfpack forecasts that its net income will be $12;million this year. The company has no depreciation expense so its net cash flow;is $12 million, and its target capital structure consists of 70 percent equity;and 30 percent debt. Wolfpack's capital budget is $10;million. What is the company's dividend payout ratio?;a. 16.67% b. 41.67% c. 11.67% d. 0.00% e. 58.30%;Albany Motors recently completed a;3-for-1 stock split. Prior to the split, the company had 10 million shares;outstanding and its stock price was $150 per share. After the split, the total;market value of the company's stock equaled $1.5 billion. What was the price of;the company's stock following the stock split?;a. $ 15;b. $ 45;c. $ 50;d. $150;e. $450;Loiselle Graphics recently announced a;3-for-1 stock split. Prior to the split, the company's stock was trading at $90;per share. The split had no effect on the wealth of the company's investors.;What will be the new stock price?;a. $270 b. $ 45 c. $180 d. $ 60 e. $ 30;Computing's stock was trading at $150;per share before its recent 3-for-1 stock split. The 3-for-1 split led to a 5;percent increase in Tarheel's market capitalization. (Market capitalization;equals the stock price times the number of shares.) What was Tarheel's price;after the stock split?;a. $472.50 b. $ 50.00 c. $ 47.62 d. $428.57 e. $ 52.50;Flavortech Inc. expects EBIT of;$2,000,000 for the current year. The firm's capital structure consists of 40;percent debt and 60 percent equity, and its marginal tax rate is 40 percent.;The cost of equity is 14 percent, and the company pays a 10 percent rate on its;$5,000,000 of long-term debt. One million shares of common stock are;outstanding. For;the next year, the firm expects to fund one large positive NPV project costing;$1,200,000;and it will fund this project in accordance with its target capital structure.;If the firm follows a residual distribution policy (with all distributions in;the form of dividends) and has no other projects, what is its expected dividend;payout ratio?;a. 100% b. 60% c. 40% d. 20% e. 0%;Driver Corporation has plans calling;for a capital budget of $60 million. Its optimal capital structure is 60;percent equity and 40 percent debt. Its earnings before interest and taxes;(EBIT) were $98 million for the year. The firm has $200 million in assets, pays;an average of 10 percent on all its debt, and faces a marginal tax rate of 35;percent. If the firm maintains a residual distribution policy (with all;distributions in the form of dividends) and will keep its optimal capital;structure intact, what will be the amount of;the dividends it pays out after financing its capital budget?;a. $22.5 million;b. $59.4 million;c. $60.0 million;d. $30.0 million;e. $ 0;Your company has decided that its;capital budget during the coming year will be $20 million. Its optimal capital;structure is 60 percent equity and 40 percent debt. Its earnings before;interest and taxes (EBIT) are projected to be $34.667 million for the year.;The;company has $200 million of assets, its average interest rate on outstanding;debt is 10 percent, and its tax rate is 40 percent. If the company follows the;residual distribution policy (with all distributions in the form of dividends);and maintains the same capital;structure, what will its dividend payout ratio be?;a. 15% b. 20% c. 25% d. 30% e. 35%;Plato Inc. expects to have net income;of $5,000,000 during the next year. Plato's target capital structure is 35;percent debt and 65 percent equity. The company's director of capital budgeting;has determined that the optimal capital budget for the coming year is;$6,000,000. If Plato follows a residual distribution policy (with all;distributions in the;form of dividends) to determine the coming year's dividend, then what is Plato's;payout ratio?;a. 38% b. 42% c. 58% d.33% e. None of the answers above is correct.;Brock Brothers wants to maintain its;capital structure that is 30 percent debt, and 70 percent equity. The company;forecasts that its net income this year will be $1,000,000. The company follows;a residual distribution policy (with all distributions in the form of;dividends), and anticipates a dividend payout ratio of 40 percent. What is the;size of the company's capital budget?;a. $ 600,000 b. $ 857,143 c.$1,000,000 d. $1,428,571 e. $2,000,000;The following facts apply to your;company;Target capital structure: 50% debt, 50% equity.;EBIT: $200 million.;Assets:$500 million.;Tax rate: 40%.;Cost of new and old debt: 8%.;Based on the residual distribution policy (with all distributions in the form;of dividends), the payout ratio is 60 percent. How large (in millions of;dollars) will the capital budget be?;a. $ 43.2 b. $ 50.0 c. $ 64.8 d. $ 86.4 e. $108.0;Which of the following is generally NOT;true and an advantage of going public?;a. Facilitates stockholder diversification.;b. Increases the liquidity of the firm's stock.;c. Makes it easier to obtain new equity capital.;d. Establishes a market value for the firm.;Which of the following is generally NOT true and an advantage of going public?;e. Makes it easier for owner-managers to engage in profitable self-dealings.;Which of the following statements about;listing on a stock exchange is most CORRECT?;a. Listing is a decision of more significance to a firm than going public.;b. Any firm can be listed on the NYSE as long as it pays the listing fee.;c. Listing provides a company with some "free" advertising, and it;may enhance the firm's prestige and help it do more business.;d. Listing reduces the reporting requirements for firms, because listed firms;file reports with;the exchange rather than with the SEC.;e. The OTC is the second largest market for listed stock, and it is exceeded;only by the NYSE.;Which of the following statements is;most CORRECT?;a. In a private placement, securities are sold to private (individual);investors rather than to institutions.;b. Private placements occur most frequently with stocks, but bonds can also be;sold in a private placement.;c. Private placements are convenient for issuers, but the convenience is offset;by higher flotation costs.;d. The SEC requires that all private placements be handled by a registered;investment banker.;e. Private placements can generally bring in funds faster than is the case with;public offerings.;Which of the following statements is;most CORRECT?;a. If new debt is used to refund old debt, the correct discount rate to use in;the refunding;analysis is the before-tax cost of new debt.;b. The key benefits associated with refunding debt are the reduction in the;firm's debt ratio;and the creation of more reserve borrowing capacity.;c. The mechanics of finding the NPV of a refunding decision are fairly;straightforward. However, the decision of when to refund is not always clear;because it requires a forecast of future interest rates.;d. If a firm with a positive NPV refunding project delays refunding and;interest rates rise, the firm can still obtain the entire NPV by locking in a;low coupon rate when the rates are low, even though it actually refunds the;debt after rates have risen.;e. Suppose a firm is considering refunding and interest rates rise during time;when the analysis;is being done. The rise in rates would tend to lower the expected price of the;new bonds;which would make them cheaper to the firm and thus increase the expected;interest;savings.;Which of the following factors would;increase the likelihood that a company would call its;outstanding bonds at this time?;a. The yield to maturity on the company's outstanding bonds increases due to a;weakening of;the firm's financial situation.;b. A provision in the bond indenture lowers the call price on specific dates;and yesterday was one of those dates.;c. The flotation costs associated with issuing new bonds rise.;d. The firm's CFO believes that interest rates are likely to decline in the;future.;e. The firm's CFO believes that corporate tax rates are likely to be increased;in the future.;Which of the following statements;concerning common stock and the investment banking;process is NOT CORRECT?;a. The preemptive right gives each existing common stockholder the right to;purchase his or her proportionate share of a new stock issue.;b. If a firm sells 1,000,000 new shares of Class B stock, the transaction;occurs in the primary market.;c. Listing a large firm's stock is often considered to be beneficial to;stockholders because the;increases in liquidity and reputation probably outweigh the additional costs to;the firm.;d. Stockholders have the right to elect the firm's directors, who in turn;select the officers who manage the business. If stockholders are dissatisfied;with management's performance, an outside group may ask the stockholders to;vote for it in an effort to take control of the business. This action is called;a tender offer.;e. The announcement of a large issue of new stock could cause the stock price;to fall. This loss is called "market pressure," and it is treated as;a flotation cost because it is a cost to stockholders that is associated with;the new issue.;Which of the following statements is;NOT CORRECT?;a. When a corporation's shares are owned by a few individuals who own most of;the stock or are;part of the firm's management, we say that the firm is "closely, or;privately, held.;b. "Going public" establishes a firm's true intrinsic value and ensures;that a liquid market will always exist for the firm's shares.;c. Publicly owned companies have sold shares to investors who are not;associated with;management, and they must register with and report to a regulatory agency such;as the SEC.;d. When stock in a closely held corporation is offered to the public for the;first time, the;transaction is called "going public," and the market for such stock;is called the new issue market.;e. It is possible for a firm to go public and yet not raise any additional new;capital.;Tuttle Buildings Inc. has decided to go;public by selling $5,000,000 of new common stock. Its;investment bankers agreed to take a smaller fee now (6% of gross proceeds;versus their normal;10%) in exchange for a 1-year option to purchase an additional 200,000 shares;at $5.00 per;share. The investment bankers expect to exercise the option and purchase the;200,000 shares;in exactly one year, when the stock price is forecasted to be $6.50 per share.;However, there is;a chance that the stock price will actually be $12.00 per share one year from;now. If the $12;price occurs, what would the present value of the entire underwriting;compensation be?;Assume that the investment banker's required return on such arrangements is;15%, and ignore;taxes.;a. $1,235,925;b. $1,300,973;c. $1,369,446;d. $1,441,522;e. $1,517,391;Europa Corporation is financing an;ongoing construction project. The firm will need $5,000,000;of new capital during each of the next 3 years. The firm has a choice of;issuing new debt or;equity each year as the funds are needed, or issue only debt now and equity;later. Its target;capital structure is 40% debt and 60% equity, and it wants to be at that;structure in 3 years;when the project has been completed. Debt flotation costs for a single debt;issue would be;1.6% of the gross debt proceeds. Yearly flotation costs for 3 separate issues;of debt would be;3.0% of the gross amount. Ignoring time value effects, how much would the firm;save by raising;all of the debt now, in a single issue, rather than in 3 separate issues?;a. $79,425;b. $83,606;c. $88,006;d. $92,406;e. $97,027


Paper#50964 | Written in 18-Jul-2015

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