What is nvp and cost of equity , Financial Management

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1. A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into a(n): 

    A)  custodial account.
    B)  sinking fund.
    C)  retirement fund.
    D)  irrevocable trust fund.
    E)  None of the above

2. Hi-Jack Truck Line has 80,000 bonds outstanding that are selling at the par value of $1000. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The risk-free rate is 4% and the market risk premium is 8%. Hi-Jack's tax rate is 35%.

3. What is Hi-Jack's weighted average cost of capital (WACC)? 

4.  The interest tax shield has no value for a firm when:
I.   the tax rate is equal to zero.
II.  the debt-equity ratio is exactly equal to 1.
III. the firm is unlevered.
IV.  the firm elects 100% equity as its capital structure. 

    A)   I and III only
    B)   II and IV only
    C)   I, III, and IV only
    D)   II, III, and IV only
    E)   I, II, and IV only

5.     The GeKay Company has a potential investment whose cost is expected to be 60 million dollars and will return $13.50 million forever in annual (after-tax) free cash flow.  The appropriate ratio of debt to equity is 1 to 1. 

The cost of equity is 13%, the (pre-tax) cost of debt is 9%, and the tax rate is 34%.  What is the NPV of the project?


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