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Question;Ronaldo;Inc. has a capital budget of $1,000,000, but it wants to maintain a target;capital structure of 50% debt and 50% equity. The company forecasts this year?s;net income to be $1,000,000. If the company follows a residual dividend policy;what will be its dividend payout ratio?;a.;30%;b.;50%;c.;20%;d.;40%;ABC;Communications recently completed a 5-for-4 stock split. Prior to the split;its stock price was $70 per share. The firm's total market value increased by;20% as a result of the split. What was the price of the company?s stock;following the stock split?;a.;$50.4;b.;$61.6;c.;$46.2;d.;$67.2;Brandi;Co. has an unlevered beta of 1.30. The firm currently has no debt, but is;considering changing its capital structure to be 30% debt and 70% equity. If;its corporate tax rate is 40%, what is Brandi's levered beta?;a.;1.26;b.;1.38;c.;1.51;d.;1.63;e.;1.75;Brandi;Co. has a levered beta of 1.30. The firm currently has 30% debt, but is;considering changing its capital structure to be 0% debt and 100% equity. If;its corporate tax rate is 40%, what is Brandi's unlevered beta?;a.;0.80;b.;0.88;c.;0.95;d.;1.03;e.;2.0;Brandi;Co. has a beta of 1.00. The firm currently has 30% debt, but is considering changing;its capital structure to be 20% debt and 80% equity. If its corporate tax rate;is 40%, what is Brandi's levered beta at 20% debt level?;Hint;First calculate unlevered beta using old capital structure and then calculate;levered beta using the new capital structure.;a.;1.19;b.;0.91;c.;1.01;d.;1.75;e.;1.10;On;average, a firm purchases $2,000,000 in merchandise a month. It has inventories;equal to two month purchases on hand at all times. If the firm analyzes its;accounts using a 360-day year, what is the firm?s inventory conversion period?;IC;= Inv/Avg. daily purchases;a.;120 days;b.;30.0 days;c.;60 days;d.;15.0 days;e.;7.5 days;Helena Furnishings;wants to sharply reduce its cash conversion cycle. Which of the following steps;would reduce its cash conversion cycle?;a.;Everything else being same, the company decreases its;average inventory.;b.;Everything else being same, the company increases the credit;period provided to customers.;c.;Everything else being same, the company pays faster to its;suppliers.;d.;All of the statements above are correct.;e.;None of the statements above are correct.;The Danser Company;expects to have sales of $40,000 in January, $40,000 in February, and $40,000;in March. If 25 percent of sales are for cash and get a 10 percent discount, 50;percent are credit sales paid in the month following the sale, and 25 percent;are credit sales paid 2 months following the sale, what are the cash receipts;from sales in March?;a.;$44,000;b.;$40,000;c.;$36,000;d.;$39,000;e.;$30,000;The;president of Lowell Inc. has asked you to evaluate the proposed acquisition of;a new computer. The computer's price is $60,000, and it falls into the MACRS;3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4).;Purchase of the computer would require an increase in net operating working;capital of $2,000. The computer would increase the firm's before-tax revenues;by $20,000 per year but would also increase operating costs by $5,000 per year.;The computer is expected to be used for 4 years and then be sold for $25,000.;The firm's marginal tax rate is 40 percent, and the project's cost of capital;is 14 percent. What is the net investment required at t = 0?;a.;-$42,000;b.;-$62,000;c.;-$38,600;d.;-$37,600;e.;-$36,600;The;president of Lowell Inc. has asked you to evaluate the proposed acquisition of;a new computer. The computer's price is $60,000, and it falls into the MACRS;3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4).;Purchase of the computer would require an increase in net operating working;capital of $2,000. The computer would increase the firm's before-tax revenues;by $20,000 per year but would also increase operating costs by $5,000 per year.;The computer is expected to be used for 4 years and then be sold for $25,000.;The firm's marginal tax rate is 40 percent, and the project's cost of capital;is 14 percent. What is the operating cash flow in Year 2?;a.;$19,800;b.;$10,240;c.;$11,687;d.;$13,453;$16200;The;president of Lowell Inc. has asked you to evaluate the proposed acquisition of;a new computer. The computer's price is $60,000, and it falls into the MACRS;3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4).;Purchase of the computer would require an increase in net operating working;capital of $2,000. The computer would increase the firm's before-tax revenues;by $20,000 per year but would also increase operating costs by $5,000 per year.;The computer is expected to be used for 4 years and then be sold for $25,000.;The firm's marginal tax rate is 40 percent, and the project's cost of capital;is 14 percent. What is the total value of the terminal year non-operating cash;flows (after-tax salvage value + working capital recovered) at the end of Year;4?;a.;$17,000;b.;$18,680;c.;$21,000;d.;$25,000;e.;$27,000;The;president of Lowell Inc. has asked you to evaluate the proposed acquisition of;a new computer. The computer's price is $60,000, and it falls into the MACRS;3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4).;Purchase of the computer would require an increase in net operating working;capital of $2,000. The computer would increase the firm's before-tax revenues;by $20,000 per year but would also increase operating costs by $5,000 per year.;The computer is expected to be used for 4 years and then be sold for $25,000.;The firm's marginal tax rate is 40 percent, and the project's cost of capital;is 14 percent. What is the project's NPV?;a.;$2,622;b.;$2,803;c.;$2,917;d.;-$7,029;e.;-$10,809;When evaluating a new;project, the firm should consider all of the following factors except;a.;Changes in working capital attributable to the project.;b.;Previous expenditures associated with a market test to;determine the feasibility of the project, if the expenditures have been expensed;for tax purposes.;c.;The current market value of any equipment to be replaced.;d.;The resulting difference in depreciation expense if the project;involves replacement.;e.;All of the statements above should be considered.;The;current price of a stock is $50 and the annual risk-free rate is 8 percent. A;call option with an exercise price of $55 and one year until expiration has a;current value of $7.20. What is the value of a put option (to the nearest;dollar) written on the stock with the same exercise price and expiration date;as the call option? (Use put-call parity);a.;$9.00;b.;$5.00;c.;$6.00;d.;$7.00;e.;$8.00;Deeble;Construction Co.?s stock is trading at $30 a share. There are also call options;on the company?s stock, some with an exercise price of $25 and some with an;exercise price of $35. All options expire in three months. Which of the;following best describes the value of these options?;a.;The options with the $25 exercise;price have an exercise value equal to $5.;b.;The options with the $25 exercise price will sell for $5.;c.;The options with the $25 exercise price will sell for less than;the options with the $35 exercise price.;d.;The options with the $35 exercise price have an exercise value;greater than $0.;Albright Motors is;expected to pay a year-end dividend of $3.00 a share (D1 = $3.00). The stock;currently sells for $30 a share. The required (and expected) rate of return on;the stock is 17 percent. If the dividend is expected to grow at a constant;rate, g, what is g?;a.;5.00%;b.;6.00%;c.;8.00%;d.;9.00%;e.;7.00%;Dabney;Electronics currently has no debt. Its operating income (EBIT) is $30 million;and its tax rate is 40 percent. It pays out all of its net income as dividends;and has a zero growth rate. It has 2.5 million shares of stock outstanding.;If it moves to a capital structure that has 40 percent debt and 60;percent equity (based on market values), its investment bankers believe its;weighted average cost of capital would be 10 percent. What would its stock;price be immediately after issuing debt if it changes to the new capital;structure?;(Hint;Find value of the firm after capitalization using Va = FCF1/(WACC-g), and then;calculate price of the stock using P0 = [S + (D ? D0) ] / n0);a.;$72;b.;$90;c.;$200;d.;$48;e.;$60;Which of the following;statements about the cost of capital is INCORRECT?;a.;A company's target capital structure affects its weighted;average cost of capital.;b.;Weighted average cost of capital calculations should be based on;the after-tax-costs of all the individual capital components.;c.;If a company's tax rate increases, then, all else;equal, its weighted average cost of capital will increase.;d.;Flotation costs can increase the cost of preferred stock.;Cartwright Brothers?;stock is currently selling for $40 a share. The stock is expected to pay a $4;dividend at the end of the year. The stock?s dividend is expected to grow at a;constant rate of 12 percent a year forever. The risk-free rate (kRF) is 7;percent and the market risk premium (kM ? kRF) is 5 percent. What is the;stock?s beta?;a.;5.00;b.;1.00;c.;2.00;d.;3.00;e.;4.00

 

Paper#51276 | Written in 18-Jul-2015

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