MBA 529 Final Exam Takehome;MBA 529;Take-Home Exam;FOLLOW DIRECTIONS;? Answer all questions. Do not repeat what the text says, but put everything in your own words.;? DO YOUR OWN WORK!;? Use your best grammar.;? Submit through the D2L Dropbox.;? Be sure to put your name on your answer pages.;? Put your name in the name of your file, e.g., BryantMBA529Final.docx;? DUE: Sunday night 11:55PM, December 8, 2013.;16.67 points each.;1) (Chapters9, 17, and M&N);Bryant Labs has asked its financial manager to measure the cost of each specific type of capital, as well as the weighted average cost of capital, using the following weights: 40% long-term debt, 10% preferred stock, and 50% common equity (consisting of retained earnings or common stock, or both). The firm?s tax rate is 40%.;Debt: The firm can sell for $980 a 10-year, $1000 par bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.;Preferred stock: Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters.;Common stock: The firm?s common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year (2011) is $4.00. Its dividend payments, which have been approximately 60% of earnings per share in each of the past 5 years, were as shown on the following table;Year Dividend;2010 $3.75;2009 3.50;2008 3.30;2007 3.15;2006 2.85;It is expected that to attract buyers, new common stock must be underpriced $5 per share, and the firm must also pay $3 per share in flotation costs. Dividend payments are expected to continue at 60% of earnings.;a. Calculate the specific cost of each source of financing. If earnings available to common shareholders are expected to be $7 million, what is the break point associated with the exhaustion of retained earnings?;b. Determine the weighted average cost of capital between zero and the break point calculated in part b.;c. Determine the weighted average cost of capital just beyond the break point calculated in part b.;Graph these WACCs.;d. How and why should managers decide whether all divisions of corporations should use the same WACCs or different WACCs?;2) In context of problem #1, how should cash flows and the WACC be adjusted for the multinational firm? What are the risks of investments in foreign countries and markets?;What differing effects would occur through direct foreign investment, as opposed to just importing and exporting abroad? (Chapter 17 and M&N chapters 8, 9, 10, and 11);3) Chapter 10;a. Describe each of the capital budgeting tools and why a manager would use each.;b. What are the advantages and disadvantages of each?;c. How are the disadvantages overcome?;d. Managers might use all of the methods to determine how viable a project is. What conclusions can be drawn as far as what conditions each of the valuation methods is useful? In other words, what added information does each of the tools provide?;(You do not need to describe the average accounting return method.);4) Chestnut Tree Farms has identified the following two mutually exclusive projects;a. Whatis the cross-over rate?What is the NPV above and below the cross-over rate? Which project should be chosen at each level?;b. What are the IRRs of both projects?;c. What are the PIs of each project?Payback?;d. Which project should you choose based on each of the methods? Draw a graph to demonstrate your answers.;5) Casper's is analyzing a proposed expansion project that is much riskier than the firm's current operations. Thus, the project will be assigned a discount rate equal to the firm's cost of capital plus 3 percent. The proposed project has an initial cost of $17.2 million dollars that will be depreciated on a straight-line basis over 20 years. The project also requires additional inventory of $687,000 over the project's life. Management estimates the facility will generate cash inflows of $2.78 million a year over its 20-year life. After 20 years, the company plans to sell the facility for an estimated $1.3 million. The company has 60,000 shares of common stock outstanding at a market price of $49 a share. This stock just paid an annual dividend of $1.84 a share. The dividend is expected to increase by 3.5 percent annually. The firm also has 10,000 shares of 12 percent preferred stock with a market value of $98 a share. The preferred stock has a par value of $100. The company has a 9 percent, semiannual coupon bond issue outstanding with a total face value of $1.1 million. The bonds are currently priced at 102 percent of face value and mature in 16 years. The tax rate is 33 percent. Should the firm pursue the expansion project at this point in time? Why or why not?;6)Discuss in-depth how multinational financial management differs from domestic financial management. Use Chapter 17 (E&B) and Chapters 8, 9, 10, and 11 (M&N).
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