Objective Types Questions

Objective Types Questions in $7 only

1. Which statement is CORRECT?

a) The IRR method assumes that Cash flows are reinvested at the firm’s WACC

b) The use of Accelerated Depreciation methods (instead of Straight-Line) results in higher operating cash flows in a projects early years.

c) For independent projects with normal cash flows, the NPV, Payback and IRR methods will always lead to the same decision.

d) For normal projects, lower costs of capital lead to lower NPVs.

2. Which of the following is true for normal projects if the cost of capital is positive?

a) If a project’s IRR is positive, then its NPV will always be positive

b) If a project’s NPV is negative, then its Modified IRR will be negative

c) If a project’s NPV is positive, then its Profitability Index will always be positive

d) If a project’s IRR is positive, then its Discounted Payback Period will exist

4 Finance Questions

4 Finance Questions in $7.50

1. Taxes and the cost of debt: A firm has a pre-tax cost of debt of 11.20% and faces a 34% tax rate. The firm’s after tax cost of debt is

2. Current cost of a bond: You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 9.75 percent coupon bonds are selling at a price of $1,111.68. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, what is the after-tax cost of debt for this firm if the firm is in the 30 percent marginal tax rate?

3. WACC for a firm: Capital Co. has a capital structure that is financed, based on current market values, with 31 percent debt, 6 percent preferred shares, and 63 percent common shares. If the return offered to the investors for each of those sources is 11 percent, 11 percent, and 16 percent for debt, preferred shares, and common shares, respectively, then what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent.

4. Cost of preferred stock: Kresler Autos has preferred shares outstanding that pay annual dividends of $9 and the current price of the shares is $81. What is the after-tax cost of new preferred shares for Kresler if the flotation (issuance) costs for a new issue of preferred are 5 percent?

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FIN 534 Quiz 1 (30 questions)

FIN 534 Quiz 1 (30 questions)  in Just $10 (Instant Download)FIN 534 Quiz 1 (30 questions)

FIN 534 Quiz 1 (30 questions)  Got 100% 

Question 1

Which of the following statements is CORRECT?
Answer

One defect of the IRR method is that it does not take account of cash flows over a project’s full life.

One defect of the IRR method is that it does not take account of the time value of money.

One defect of the IRR method is that it does not take account of the cost of capital.

One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future.

One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.
2 points
Question 2

FIN 534 Week 5 Homework Chapter 9

FIN 534 Week 5 Homework Chapter 9

1. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

a. Increase the dividend payout ratio for the upcoming year.

b. Increase the percentage of debt in the target capital structure.

c. Increase the proposed capital budget.

d. Reduce the amount of short-term bank debt in order to increase the current ratio.

e. Reduce the percentage of debt in the target capital structure.

WACC Calculation for Filer Manufacturing

WACC Calculation for Filer Manufacturing

Filer manufacturing has 7.5 millions shares of common stock outstanding. The current share price is $49, and the book value per share is $4. Filer also has 2 bond issues outstanding the first bond issue has a face value of $60 millions and a 7% coupon and sells for 93% of par. The second issue has a face value of $50 million and a 6.5% coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years. Suppose the company’s stock has a beta of 1.2. The risk free rate is 5.2%, and the market risk premium is 7%. Assume that the overall cost of debt is the weighted average implied by the 2 outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35%. What is the company’s WACC?

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Cost of Capital and Weighted Average Cost of Capital

Calculate the after-tax cost of a $25 million debt issue that Pullman Manufacturing Corporation (40% marginal tax rate) is planning to place privately with a large insurance company. This long-term issue will yield 6.6% to the insurance company.

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Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Weighted Average Cost of Capital (WACC) for Golden Gate construction Associates

Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt

and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate’s equity capital is the investment opportunity rate of Golden Gate’s investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate’s $90 million of long-term debt is 10 percent, and the company’s tax rate is 40 percent. The cost of Golden Gate’s equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate’s equity is $135 million. Required: Calculate Golden Gate Construction Associates’ weighted-average cost of capital

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Questions on Cost of Capital, WACC & IPO

Questions on Cost of Capital, WACC & IPO

Questions on Cost of Capital, WACC & IPO
1. What are the main elements in calculating cost of capital? How would an increase in debt affect the cost of capital? How would you identify the optimal cost of capital for an organization?
2. What is meant by Weighted Average Cost of Capital (WACC)? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term capital?
3. What is an Initial Public Offering (IPO)? How does an IPO allow an organization to grow financially? When is a merger or an acquisition, rather than an IPO, a more appropriate way to grow?

Each answer should be 150-300 words.

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FIN200

Final Project Overview in $50 Only

FIN200

As students of finance and potential investors, you can estimate the financial health and profitability of a company using financial ratios and other industry tools. The tools and skills practiced in this course can be used to help you determine whether or not to invest money in a company. Research into the financial health of the company can help make the decision.

In the final project, you compute corporate performance ratios and compare them to industry averages. You also study portions of the company’s annual report to analyze the company’s operating and cash cycles, long-term debt, and cost of capital. Finally, you summarize your conclusions in an analysis from an investor perspective. Please summarize and explain the project listed in the syllabus here.

Final Project Timeline

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