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Each question is worth 10 Points. Place your fina...

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Question

Each question is worth 10 Points. Place your final answers on the first worksheet, then show your work to each problem on a separate worksheet. 1) The Webster Corp. is planning construction of a new shipping depot for its single manufacturing plant. The initial cost of the investment is $1 million. Efficiencies from the new depot are expected to reduce costs by $100,000 forever. The corporation has a total value of $60 million and has outstanding debt of $40 million. What is the NPV of the project if the firm has an after tax cost of debt of 6% and a cost equity of 9%? . 2) The Tip-Top Paving Co. has a beta of 1.11, a cost of debt of 11% and a debt to value ratio of .6. The current risk free rate is 9% and the market rate of return is 16.18%. What is the company's cost of equity capital? 3) The Wordsmith Corporation has 10,000 shares outstanding at $30 each. They expect to raise $150,000 by a rights offering with a subscription price of $25. How many rights must you turn in to get a new share? 4) The Holly Corporation has a new rights offering that allows you to buy one share of stock with 4 rights and $25 per share. The stock is now selling ex-rights for $30. The price rights-on is: 5) Your firm is considering leasing a new laser light. The lease lasts for 3 years. The lease calls for 4 payments of $10,000 per year with the first payment occurring immediately. The computer would cost $45,000 to buy and would be straight-line depreciated to a zero salvage value over 3 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 10%. The corporate tax rate is 35%. a) What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-3? b) What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0? c) What is the NPV of the lease relative to the purchase? 6) a) What is the cost of five November 25 call option contracts on KNJ stock given the following price quotes? b) What is the value of one November 35 put contract? c) What is the intrinsic value of the August 25 call? 7) You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment? 8) On March 1, you contract to take delivery of 1 ounce of gold for $415. The agreement is good for any day up to April 1. Throughout March, the price of gold hit a low of $385 and hit a high of $435. The price settled on March 31 at $420, and on April 1st you settle your futures agreement at that price. Your net cash flow is: 9) The duration of a 2 year annual 10% bond that is selling for par is: 10) Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The firm just announced a 10% (small) stock dividend. a) What will the balance in the retained earnings account be after the dividend? b) What will the market price per share be after the dividend? 11) Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither firm has any debt. Sally's is acquiring Jennifer's for $58,000 in cash. a) What is the merger premium per share? b) If the incremental value of the acquisition is $2,500. What is the value of Jennifer's Boutique to Sally's?

 

Paper#5314 | Written in 18-Jul-2015

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