FINC 330 Business Finance Final Exam Answers
Given the following information on Big Brothers, Inc. capital structure, compute the company’s weighted average cost of capital (WACC). The company’s marginal tax rate is 40%.
Find the net present value (NPV) for the following series of future cash flows, assuming the company’s cost of capital is 5.74 percent. The initial outlay is $422,051.
What is the yield to call of a 30-year to maturity bond that pays a coupon rate of 12.93 percent per year, has a $1,000 par value, and is currently priced at $1,403? The bond can be called back in 8 years at a call price $1,095. Assume annual coupon payments.
Tall Trees, Inc. is using the modified internal rate of return (MIRR) when evaluating projects. The company is able to reinvest cash flows received from the project at an annual rate of 9.86 percent. What is the MIRR of a project if the initial costs are $2,249,400 and the project life is estimated as 9 years? The project will produce the same after-tax cash inflows of 619,400 per year at the end of the year.
Last year the Black Water Inc. paid dividends $2.07. Company’s dividends are expected to grow at an annual rate of 5% forever. The company’s common stock is currently selling on the market for $63.12. The investments banker will charge flotation costs $3.14 per share. Calculate the cost of common equity financing using Gordon Model.
What is the yield to maturity of a 24-year bond that pays a coupon rate of 13.21 percent per year, has a $1,000 par value, and is currently priced at $1,123? Assume annual coupon payments.
Try to determine the required rate of return on Tilden Woods Corporation’s common stock. The firm’s beta is 2.09. The rate on a 10-year Treasury bond is 3.23 percent, and the market risk premium is 8.47 percent.
Find the Discounted Payback period for the following project. The discount rate is 7%
Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 9.56 percent coupon rate and paid interest annually. It is now 10 years later. The current market rate of interest on the Bright Sun bonds is 11.76 percent. What is the current market price (intrinsic value) of the bonds? v
A few years ago, Spider Web, Inc. issued bonds with a 6.49 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $1,020, and will mature in 13 years. What would the annual yield to maturity be on the bond if you purchased the bond today?
Find the internal rate of return (IRR) for the following series of future cash flows. The initial outlay is $502,600.
Appliance for Less is a local appliance store. It costs this store $18.74 per unit annually for storage, insurance, etc., to hold microwave in their inventory. Sales this year are anticipated to be 731 units. Each order costs $96. The company is using Economic Order Quantity model in placing the orders.
13 years ago, Blue Lake Corp. issued 30 year to maturity zero-coupon bonds with a par value of $5,000. The current interest rate on this type of bond is 6.61 percent, compounded annually. What is the current price of the bond?
Great Seneca Inc. sells $100 million worth of 27-year to maturity 10.81% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $975 for each $1,000 bond. The firm’s marginal tax rate is 40%. What is the after-tax cost of capital for this debt financing?
You hold a portfolio with the following securities:
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 10.72 percent. What is the PI of a project if the initial costs are $2,431,900 and the project life is estimated as 10 years? The project will produce the same after-tax cash inflows of $677,234 per year at the end of the year.
General Mills has a $1,000 par value, 10-year to maturity bond outstanding with an annual coupon rate of 8.24 percent per year, paid semiannually. Market interest rates on similar bonds are 8.93 percent. Calculate the bond’s price today.
Jack holds a portfolio with the following securities:
Leaf It To Us Corporation is considering an expansion project. The necessary equipment could be purchased for $29,105,900 and shipping and installation costs are another $23,646. The project will also require an initial $213,481 investment in net working capital. What is the project’s initial investment outlay?
sume that today’s date is April 15, 2015. Fresh Bakery Inc. bond is an annual-coupon bond. Par value of the bond is $5,000.
How much you will pay for the bond if you purchased the bond today? The answer should be calculated to two decimal places
The prices for the White Swan Corporation for the first quarter of the last year are given below. Find the holding period return (percentage return) for February.
The Yo-Yo Corporation tries to determine the appropriate cost for retained earnings to be used in capital budgeting analysis. The firm’s beta is 1.75. The rate on six-month T-bills is 3.11%, and the return on the S&P 500 index is 8.46%. What is the appropriate cost for retained earnings in determining the firm’s cost of capital?
eci-Bell, Inc. is producing new headphones, but first management wants to determine its degree of operating leverage. Deci-Bell Inc. has a base level of sales of 250,982 units. Sales price per unit is $151.19 and variable cost per unit is $71.83. Total annual operating fixed costs are $7,862,670.
Calculate Deci-Bell’s degree of operating leverage. Round the answer to two decimal places
Calculate the expected return on stock of Time Saver Inc.:
The next year the common stock of Gold Corp. will pay a dividend of $4.83 per share. If the company is growing at a rate of 3.74 percent per year, and your required rate of return is 11.58 percent, what is Gold’s company stock worth to you?
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