Reference no: EM132194204

1)Tom and Jerry's has 3.0 million shares of common stock outstanding, 3.0 million shares of preferred stock outstanding, and 20.00 thousand bonds. If the common shares are selling for $14.00 per share, the preferred share are selling for $11.00 per share, and the bonds are selling for 99.90 percent of par, what would be the weight used for equity in the computation of Tom and Jerry's WACC?

49.83%
33.33%
44.22%
79.28%

2)Bill's Boards has 20.2 million shares of common stock outstanding, 4.2 million shares of preferred stock outstanding, and 22.00 thousand bonds. If the common shares are selling for $30.20 per share, the preferred share are selling for $17.20 per share, and the bonds are selling for 95.98 percent of par, what would be the weight used for equity in the computation of Bill's WACC?

86.73%
82.71%
66.67%
33.33%

3)Fern has preferred stock selling for 93.9 percent of par that pays an 9.1 percent annual coupon. What would be Fern's component cost of preferred stock?

8.54%
9.69%
9.10%
10.10%

4)Your Company is considering a new project that will require $970,000 of new equipment at the start of the project. The equipment will have a depreciable life of 7 years and will be depreciated to a book value of $448,500 using straight-line depreciation. The cost of capital is 12%, and the firm's tax rate is 30%. Estimate the present value of the tax benefits from depreciation (closest to).
$102,000
$52,150
$74,500
$22,350

5)You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $120,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $12,000. Use of the truck will require an increase in NWC (spare parts inventory) of $4,200. The truck will have no effect on revenues, but it is expected to save the firm $52,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 30 percent. What will the cash flows for this project be during year 2?
$45,216
$65,788
$22,612
$47,800

6)Your firm needs a machine which costs $250,000, and requires $40,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35% and a discount rate of 14%. If this machine can be sold for $25,000 at the end of year 3, what is the after tax salvage value?
$12,041
$6,475.00
$16,250.00
$22,733.75

7)Suppose you sell a fixed asset for $78,000 when it's book value is $86,000. If your company's marginal tax rate is 28%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
$8,000
$56,160
$80,240
$86,000

8)Compute the PI static for your firm's new project if the appropriate cost of capital is 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal laces.)
Your firm's project

Time	0	1	2	3	4	5	6
Cash Flow	-900	190	450	650	650	250	650

Should the project be accepted or rejected?
Accepted
Rejected

9)Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 11 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time:	0	1	2	3
Project A Cash Flow	-28,000	18,000	38,000	9,000
Project B Cash Flow	-38,000	18,000	28,000	58,000

Use the discounted payback decision rule to evaluate these projects; which one(s) should it be accepted or rejected?
reject A, accept B
accept A, reject B
accept both A and B
accept neither A nor B

10)Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent and the maximum allowable payback is 4 years.

Time:	0	1	2	3	4	5
Cash flow:	-3,100	950	700	850	725	625

2.83 years, Accept
2.83 years, Reject
3.83 years, Reject
3.83 years, Accept

11)If a firm has a cash cycle of 32 days and an operating cycle of 94 days, what is its average payment period?
32
126
62
94

12)Hollywood Shoes would like to maintain their cash account at a minimum level of $56,000, but expect the standard deviation in net daily cash flows to be $4,600; the effective annual rate on marketable securities to be 6.25 percent per year; and the trading cost per sale or purchase of marketable securities to be $160 per transaction. What will be their optimal cash return point? (Round your answer to 2 decimal places.)
$77,315.83
$60,600.00
$80,818.06
$80,064.97

13)Hollywood Shoes would like to maintain their cash account at a minimum level of $65,000, but expect the standard deviation in net daily cash flows to be $5,500; the effective annual rate on marketable securities to be 6.00 percent per year; and the trading cost per sale or purchase of marketable securities to be $250 per transaction. What will be their optimal upper cash limit? (Round your answer to the nearest dollar amount.)
$70,500
$86,182.25
$163,621.19
$89,823.72

14)Which of the following statements is correct?
An auto manufacturer is less capital intensive than a bakery.
An accounting firm is more capital intensive than a railroad.
An oil refinery is more capital intensive than Starbucks.
None of these are correct.

15) Suppose a firm has had the historical sales figures shown as follows. What would be the forecast for next year's sales using regression to estimate a trend?

Year	2008	2009	2010	2011	2012
Sales	$800,000	$810,000	$825,000	$835,000	$850,000

$850,000
$860,000
$861,500
$874,000

16) Which of the following can be computed as: necessary increase in assets minus spontaneous increase in liabilities minus projected increase in retained earnings?
Additional funds needed
Capital intensity ratio
Current ratio
Spontaneous assets

17) Your company doesn't face any taxes and has $762 million in assets, currently financed entirely with equity. Equity is worth $51.20 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

State	Recession	Average	Boom
Probability of State	.15	.65	.20
Expect EBIT in State	$112 million	$187 million	$247 million

The firm is considering switching to a 30-percent debt capital structure, and has determined that they would have to pay a 9 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)

3.79
15.49
16.04
6.82

18) Suppose that a company's equity is currently selling for $27.00 per share and that there are 4.2 million shares outstanding. If the firm also has 22.0 thousand bonds outstanding, which are selling at 98.0 percent of par, what are the firm's current capital structure weights for equity and debt respectively?
27.55%, 72.45%
84.02%, 15.98%
50%, 50%
80.99%, 19.01%

Your company doesn't face any taxes and has $257 million in assets, currently financed entirely with equity. Equity is worth $8.7 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

19)The firm is considering switching to a 30-percent debt capital structure, and has determined that they would have to pay a 8 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
$1.78
$2.98
$1.49
$2.46

20)Suppose a firm has a retention ratio of 35 percent, net income of $31.1 million, and 6.1 million shares outstanding. What would be the dividend per share paid out on the firm's stock?
$1.78
$.65
$3.31
$5.10

21)Balloons Inc normally pays a quarterly dividend. The last such dividend paid was $1.45, all future quarterly dividends are expected to grow at 7 percent, and the firm faces a required rate of return on equity of 14 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $2.65 per share that is not expected to affect any other future dividends, what should the stock price be?
$21.79
$22.16
$18.55
$23.12

22)Suppose a firm pays total dividends of $33,000 out of net income of $180,000. What would the firm's payout ratio be?
5.45
18.33
.18
1.80

23)Calculating Costs of Issuing Debt Tennis Games, Inc., with the help of its investment bank recently issued $26.30 million of new debt. The offer price (and face value) on the debt was $5,000 per bond and the underwriter's spread was 7 percent of the gross proceeds. What is the amount of capital funding Tennis Games, Inc. raised through this debt offering?
$22.62 million
$24.46 million
$26.30 million
$1.84 million

24)Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public with an initial public offering of 3.01 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $7.55 per share and the underwriter's spread was 6 percent of the gross proceeds. Turbo also paid legal and other administrative costs of $210,000 for the IPO. Calculate the gross proceeds per share received by Turbo from the sale of the 3.01 million shares of stock.
$7.62
$8.04
$8.11
$7.55

25)Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $2.40 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 10 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2.40 million they need?
2,640
2,640,000
2,667
2,666,667