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##### Financial Problems- Season?s Republic Inc. has a bond outstanding. This bond has a 9.5% coupon paid semiannually, and is selling in the market for $913.00 with 6 years remaining to maturity. What is the bond?s YTM?

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Season?s Republic Inc. has a bond outstanding. This bond has a 9.5% coupon paid semiannually, and is selling in the market for $913.00 with 6 years remaining to maturity. What is the bond?s YTM?;a. 10.92%;b. 11.55%;c. 11.73%;d. 11.80%;XYZ Promotions Corporation has a bond outstanding with a market price of $1,136.00. The bond has 4.5 years to;maturity, pays interest semiannually, and has a yield to maturity of 9.47%. What is the bond?s coupon rate?;a. 13.70%;b. 13.62%;c. 13.25%;d. 13.02%;Use the following information to answer this question and the next question.;The Bozo Company has an 8% coupon bond outstanding. The bond makes semiannual coupon payments and has 12;years remaining to maturity. Its market price is $846.64. It is issuing a new 20-year bond to finance a factory to;make new Bozos. The new bond will make annual coupon payments.;What is the yield to maturity of the Bozo Company?s existing bonds?;a. 9.50%;b. 10.00%;c. 10.25%;d. 10.50%;What coupon rate should be set for the new bonds of the Bozo Company for these bonds to sell at par?;a. 9.50%;b. 10.00%;c. 10.25%;d. 10.50%;The XYZ Company bond has a bond outstanding that has 10 years remaining to maturity. The bond has a coupon;rate of 10.50 percent, paid quarterly. If the yield to maturity is 12.0 percent, what is the market value of this bond?;a. $915.25;b. $913.32;c. $1,092.18;d. $1,000.00Use the following information to answer this question and question 7.;Bonds of RAR Foods are selling in the market for $854.66. These bonds carry a 9 percent coupon paid;semiannually, and have 15 years remaining to maturity.;What is the bond?s yield to maturity?;a. 10.62%;b. 11.00%;c. 9.25%;d. 10.00%;What is the capital gain yield assuming that the interest rates will remain constant over the year?;a. 0.682%;b. 0.169%;c. 0.000%;d. 0.482%;Use the following information to answer this question and question 9.;Bonds of Orange Computers and Peach Computers are identical in all respect, including risk class. The only;difference is that they have different coupon. Orange Computer bond has a semiannual coupon of $47.50 and Peach;Computers bond has a semiannual coupon of $40.00. Both bonds have 8 years to maturity. The Orange Computer;bond is selling in the market for $1,151.18.;What is the yield to maturity of Orange Computers bond?;a. 7.5%;b. 9.0%;c. 8.5%;d. 7.0%;What is the price of Peach Computers bond?;a. $1,060.47;b. $1,052.82;c. $ 818.59;d. $1,037.86;Desi Inc. has a bond outstanding with 8 percent coupon, paid semiannually, and 15 years to maturity. The market;price of the bond is $1,091.96. If due to changes in market condition the market required rate of return suddenly;increases by 2%, what will be the percent change in the market price of the bond?;a. 15.88%;b. ?18.88%;c. ?15.88%d. 62.48%;Banana Company just paid a dividend of $5 per share. If dividends have a growth rate of 5 percent and you require;12 percent return, what is the value of the stock?;a. 71.42;b. 41.67;c. 43.75;d. 75.00;e. 105.00;Slow decline Company just paid a dividend of $2.50 per share. If dividends have been declining at a constant rate of;2 percent and you require 10 percent return, what is the value of the stock?;a. 20.42;b. 31.88;c. 34.17;d. 17.50;e. 15.00;If the dividend yield on Weildone, Inc. common stock is 8 percent and its expected constant growth rate is 5percent;what is the required rate of return?;a. 5%;b. 8%;c. 3%;d. 13%;e. Not enough information;Dolce, Deluca, and Benz Inc. will pay a dividend of $6 for each of the next 3 years, $7 for each of the years 4-7, and;$9 for the years 8-10. Thereafter, the company will pay no dividends. If you require 16 percent rate of return on;investments in this risk class, how much is this stock worth to you?;a. 29.01;b. 33.18;c. 46.21;d. 57.00;e. 73.00;Duane Lee Inc. will pay a dividend of $5 each year for the next 10 years. Thereafter, it will pay no dividends. If you;require 12 percent rate of return, how much is this stock worth to you?;a. 28.25;b. 33.18;c. 46.21;d. 57.00e. 73.00;Two companies, A and B, are in the same risk class. Company A pays a constant dividend of $4 per year and is;selling in the market for $35 per share. Company B just paid a dividend of $3.25 per share. If its dividends are;growing at a constant rate of 8 percent per year, what is the market price of B?;a. 35.00;b. 33.18;c. 57.21;d. 94.79;e. 102.37;Hatstand and Bandstand Inc. stock is selling for $38. Th company has been maintaining a constant growth rate of;dividends of 5 percent. If the required rate of return for this company is 14 percent, what was the most recent;dividend paid by the company?;a. 2.90;b. 3.06;c. 3.26;d. 3.42;e. 4.11;Sanding and Bending Inc. will pay no dividends for the next seven years. In the Year 8, it will pay a dividend of $6;and maintain a constant growth of 6 percent thereafter. If the required rate of return is 12 percent, what is the value;of the stock?;a. 100.00;b. 97.18;c. 57.21;d. 45.23;e. 40.39;Use the following information to answer this and the next question.;Dividends of Super Drug, Inc. will grow at 25 percent a year for the next 3 years, 18 percent a year for years 4-6;and at a constant rate of 5 percent thereafter. The company just paid a dividend of $1.50 and you require a 15% rate;of return from stocks with this risk level.;What is the dividend at the end of year 5?;a. 2.34;b. 2.93;c. 3.46;d. 4.08How much is this stock worth to you?;a. 21.85;b. 33.27;c. 50.54;d. 11.41;e. 16.45;Use the following information for this and the next question.;Bean Pharmaceuticals has 1,000,000 shares of common stock with a market price of $35 per share, 225,000 shares;of preferred stock with a market price of $98 per share, and 10,000 bonds outstanding which are selling in the;market at 97.25 percent of par. The company needs new capital of $12 million to expand its asset base. It has;calculated that the after-tax cost of new equity is 12.50% and the cost of new preferred stock is 9.4%. The;company?s bonds are yielding 8% in the market. Corporate tax rate is 34%.;What percent of the new expansion funds must be in the form of equity?;a. 14.5%;b. 33.0%;c. 52.4%;d. 100%;What is the weighted average cost of capital?;a. 11.3%;b. 10.8%;c. 10.4%;d. 9.7%;Hi-Octane Oil Company has a debt-equity ratio of 0.25. The company uses no preferred stock in its capital structure.;If the cost of equity is 14.4% and the after-tax cost of debt is 6.2%, what is the company?s weighted average cost of;capital?;a. 6.20;b. 8.25%;c. 12.35%;d. 12.76%;e. 14.4%;Use the following information answer questions 4 to 10.;The Golden Baked Goods (GBG) is expecting a jump in sales and needs to add $2 million in assets. Its current;balance sheet is: Its current operations are expected to add $500,000 to retained earnings during the coming year. Its current debt;originally issued at par, has a 6% coupon rate, maturity of 10 years, market price of $864.10, and pays interest;semiannually. The current preferred stock (30,000 shares outstanding) carries a dividend of $6.00 per share and is;selling in the market at $81.50 per share. GB's common stock (220,000 shares outstanding) is selling in the market at;$45 per share. The company just paid a common stock dividend of $2.50 per share. The dividends are expected to;grow at 4% per year for the foreseeable future. GBG?s overall tax rate is 35%.;GBG can sell new common stock at current market price with a flotation cost of 5%, new preferred stock with a;dividend of $6/share to net $80 per share, and new semiannual coupon bonds (Par value $1,000) with 20 year;maturity and a 9.5% coupon to net $957.10. Assume that the current market-based capital structure is optimal.;What percent of new financing must come from equity funds?;a. 29.58%;b. 13.95%;c. 56.48%;d. 100%;What is the after-tax cost of debt?;a. 4.87%;b. 6.50%;c. 7.50%;d. 9.78%;e. 10.00%;What is the after-tax cost of preferred stock?;a. 4.87%;b. 6.50%;c. 7.50%;d. 9.78%;e. 10.00%;What is the after-tax cost of retained earnings?;a. 6.50%b. 8.58%;c. 9.78%;d. 9.95%;e. 10.08%;What is the after-tax cost of new equity?;a. 6.50%;b. 8.58%;c. 9.78%;d. 9.95%;e. 10.08%;What is the average after-tax cost of all equity funds?;a. 6.50%;b. 8.58%;c. 9.78%;d. 9.95%;e. 10.08%;What is GBG's weighted average cost of capital?;a. 6.50%;b. 8.58%;c. 9.78%;d. 9.95%;e. 10.08%

Paper#77301 | Written in 18-Jul-2015

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