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Question 1

UOP FIN 571 Week 3 Using the Payback Method, IRR, and NPV NEW

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The purpose of this assignment is to allow the student to calculate the project cash flow using net present value (NPV), internal rate of return (IRR), and the payback methods.
Assignment Steps
Resources: Corporate Finance
Create a 350-word memo to management including the following:
• Describe the use of internal rate of return (IRR), net present value (NPV), and the payback method in evaluating project cash flows.
• Describe the advantages and disadvantages of each method.
Calculate the following time value of money problems:
1. If you want to accumulate $500,000 in 20 years, how much do you need to deposit today that pays an interest rate of 15%?
2. What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%?
3. What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years?
4. If your company purchases an annuity that will pay $50,000/year for 10 years at a 11% discount rate, what is the value of the annuity on the purchase date if the first annuity payment is made on the date of purchase?
5. What is the rate of return required to accumulate $400,000 if you invest $10,000 per year for 20 years. Assume all payments are made at the end of the period.
Calculate the project cash flow generated for Project A and Project B using the NPV method.
• Which project would you select, and why?
• Which project would you select under the payback method? The discount rate is 10% for both projects.
• Use Microsoft®Excel®to prepare your answer.
• Note that a similar problem is in the textbook in Section 5.1.
Sample Template for Project A and Project B:

Show all work.
Submit the memo and all calcluations

Answer 1

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Question 2

UOP FIN 571 Week 5 Assignment Effect of Debt Issuance on Stock Valuation NEW

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Purpose of Assignment
The purpose of this assignment is to demonstrate to students how the issuance of debt to purchase outstanding common stock could affect the value of the company’s equity and redefine the capital structure. The problem will also allow students to explore the effect of corporate taxes through debt financing.
Assignment Steps
Resources:Corporate Finance
Scenario: Hightower, Inc. plans to announce it will issue $2.0 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 5%. Hightower, Inc. is currently an all-equity company worth $7.5 million with 400,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The company currently generates annual pretax earnings of $1.5 million. This level of earnings is expected to remain constant in perpetuity. The tax rate is 35%.
Prepare a 1,050-word memo advising the management of Hightower, Inc. on the financial impact, including the following:
· What is the expected return on the company’s equity before the announcement of the debt issue?
· Construct the company’s market value balance sheet before the announcement of the debt issue. What is the price per share of the firm’s equity?
· Construct the company’s market value balance sheet immediately after the announcement of the debt issue.
· What is the company’s stock price per share immediately after the repurchase announcement?
· How many shares will the company repurchase as a result of the debt issue? How many shares of common stock will remain after the repurchase?
· What is the required return on the company’s equity after the restructuring?
Discuss the advantages and disadvantages of debt financing over equity financing.

Answer 2

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Question 3

UOP FIN 571 Week 2 Stock Valuation and Analysis NEW
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Purpose of Assignment
The purpose of this assignment is to allow students the opportunity to research a Fortune 500 company stock using the popular online research tool Yahoo Finance. The tool allows the student to review analyst reports and other key financial information necessary to evaluate the stock value and make an educated decision on whether to invest.
Assignment Steps
Resources: Yahoo Finance
Select a Fortune 500 Company from one of the following industries:
• Pharmaceutical
• Energy
• Retail
• Automotive
• Computer Hardware
• Manufacturing
• Mining
Access Yahoo Finance and enter the company name.
Review the financial information and statistics provided for the stock you selected and answer the following:
• What is the ticker symbol of the company you chose?
• What is the Current Stock Price?
• What is the Market Cap for the stock you chose?
• What is the Price to Earnings Ratio?
• What is the Dividend and Yield?
• What is the Enterprise Value?
• What is the Beta?
• Was there a Stock Split, and if so, when?
• What was the closing stock price for the last 5 days?
• What was the 52 Week High for this stock?
• What is the Book Value per Share?
• What type of rating are analysts recommending (i.e. buy, hold, etc.)?
• What is the target price analysts are predicting for this stock?
• What is the analyst’s average revenue estimate for next year?
• What are some of the significant news items and press releases made by the company over the last year?
Explain in 700 words why you would or would not recommend investing in this stock.
• Describe the relationship between the value of the stock and the price to earnings ratio.
• What information does the Market Capitalization (Market Cap) and Beta provide to the investor?
Click the Assignment Files tab to submit your assignment.

Answer 3

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Question 4

UOP FIN 571 Final Exam Guide New

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Question 1 The underlying assumption of the dividend growth model is that a stock is worth:
A. An amount computed as the next annual dividend divided by the required rate of return.
B. An amount computed as the next annual dividend divided by the market rate of return.
C. The same amount computed as any other stock that pays the same current dividend and has the same required rate of return.
D. The present value of the future income that the stock is expected to generate.
E. The same amount to every investor regardless of their desired rate of return.

• Question 2    You plan to invest $6,500 for three years at 4 percent simple interest. What will your investment be worth at the end of the three years?
A. $6,941.11
B. $7,280.00
C. $7,311.62
D. $6,760.00
E. $7,250.00

• Question 3    A firm has  a debt-equity ratio of.64, a pre tax cost of debt of 8.5 percent, and a required return on assets of  12.6 percent, What is the cost of equity if you  ignore taxes ?
A. 16.38%
B. 8.55%
C. 15.22%
D. 11.22%
E. 8.06%

• Question 4   What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent ?
A. $6,395.31
B. $7,253.72
C. $6,023.58
D. $6,643.29
E. $6,671.13

• Question 5   Under the\_\_\_\_\_\_\_\_\_\_\_\_ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the \_\_\_\_\_\_\_\_\_  method, the underwriter does not purchase the shares but merely acts as an agent.
A. Best efforts; firm commitment
B. Seasoned; unseasoned
C. Firm commitment; best efforts
D. Negotiated offer; competitive offer
E. Competitive offer; negotiated offer

Question 6 All else held constant, interest rate risk will increase when the time to maturity:

A. Increase or the coupon rate increases.
B. Increase or the coupon rate decreases.
C. Decrease and the coupon rate equals zero.
D. Decrease or the coupon rate increases.
E. Decrease or the coupon rate decreases.

Question 7 The process of planning and managing a firm’s long-term assets is called:

A. Agency cost analysis.
B. Working capital management.
C. Financial depreciation.
D. Capital structure.
E. Capital budgeting.

Question 8 An efficient capital market is one in which:

A. Securities always offer a positive NPV.
B. Taxes are irrelevant.
C. All investments earn the market rate of return.
D. Brokerage commissions are zero.
E. Security prices reflect all available information.

Question 9 Which one of these statements is correct concerning the cash cycle?
A. Increasing the accounts payable period increases all cash cycle.
B. A positive cash cycle is preferable to a negative cash cycle.
C. The cash cycle can exceed the operating cycle if the payables period is equal to zero.
D. The longer the cash cycle, the more likely a firm will need external financing.
E. A dopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

Question 10 The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _______ costs.

A. Direct bankruptcy
B. Financial solvency
C. Flotation
D. Indirect bankruptcy
E. Capital structure

Question 11 Which one of the following is an example of a nondiversifiable risk?

A. A well-respected president of a firm suddenly resigns
B. A well-respected chairman of the Federal Reserve Bank suddenly resigns
C. A poorly managed firm suddenly goes out of business due to lack of sales
D. A key employee suddenly resigns and accepts employment with a key competitor
E. A well-managed firm reduces its work force and automates several jobs

Question 12 One disadvantage of the corporate form of business ownership is the:
A. Limited liability protection provided for all owners.
B. Unlimited life of the firm.
C. Difficulties encountered when changing ownership.
D. Double taxation of profits.
E. Firms ability to raise cash.

Question 13 Which one of the following statements about preferred stock is true?
A. There is no significant difference in the voting rights granted to preferred and common shareholders.
B. If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year.
C. Preferred stock usually has a stated liquidating value of $100 per share.
D. Unlike dividends paid on common stock. Dividends paid on preferred stock are a tax-deductible expenses.
E. Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.

Question 14 Book value :
A. Is adjusted to market value whenever the market value exceeds the stated book value.
B. Is based on historical cost.
C. Is equivalent to market value for firms with fixed assets.
D. Generally tends to exceed market value when fixed assets are included.
E. Is more of a financial than an accounting valuation.

Question 15 The primary goal of financial management is to:
A. Avoid financial distress.
B. Maintain steady growth sales and net earnings.
C. Maximize the current value per share of the existing stock.
D. Minimize operational costs and maximize firm efficiency.
E. Maximize current dividends per share of the existing stock.

Question 16   Which term defines the tax rate that applies to the next dollar of taxable income earned ?
A. Deductible
B. Total
C. Marginal
D. Residual
E. Average

Question 17    Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first annuity payment made on the date of purchase. What is the value of the annuity on the purchase date given a discount rate of 7 percent ?
A. $56,191.91
B. $52,970.07
C. 54,282.98
D. $66,916.21
E. 56,677.98

Question 18   The cash flow resulting from a firm’s ongoing, normal business activities is referred to as the: 
A. Net capital spending.
B. Cash flow to investors.
C. Additions to net working capital.
D. Operating  cash flow.
E. Cash flow to retained earnings.

Question 19 The market price of a bond increases when the:
A. Par value decreases.
B. Coupon rate decreases.
C. Discount rate decreases.
D. Face value decreases.
E. Coupon is paid annually rather than semiannually

Question 20    The excess return you earn by moving from a relatively risk-free investment to a risky investment is called :
A. Arithmetic average return.
B. Geometric average return.
C. Time premium.
D. Risk premium.
E. Inflation premium.

Question 21    A firn has a total debt ratio of . 47. This means the firn has 47 cents in debt for every:
A. $ 1 in fixed assets.
B. $ 53 in total equity.
C. $ 1 in total equity.
D. $ 1 in current assets.
E. $ 53 in total assets.

Question 22 A ll else equal, the contribution must increase as:
A. Both the sales price and variable cost per unit increase.
B. The variable cost per unit declines.
C. The fixed cost per unit declines.
D. Sales price per unit declines.
E. The sales price minus the fixed per unit increases.

Question 23    A project has an initial cost of $2,250.The cash inflows are $0,$500,$900,and $700 for years 1 to 4, respectively. What is the payback period ?
A. 3.92 years
B. 2.84 years 
C. Never
D. 2.97 years
E. 3.98 years

Question 24    Ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as:
A. Liquidity measures.
B. Asset management ratios.
C. Long-term solvency measures.
D. Profitability ratios.
E. Market value ratios.

Question 25    The discount rate that makes the net present value of an investment exactly equal to zero is called the:
A. Profitability index.
B. External rate of return.
C. Averages accounting return.
D. Equalizer.
E. Internal rate of return.

Question 26 An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the________ rate.

A. Compound interest
B. Stated interest
C. Effective annual
D. Periodic interest
E. Daily interest

Question 27 Which one of the following statements is false?
A. If sales are seasonal, the percentages shown on an aging schedule will vary during the year.
B. Aging schedules are used to monitor accounts receivable.
C. An aging schedule includes only overdue accounts
D. Investments in accounts equal average daily sales times average collection period.
E. Collection efforts may involve legal action.

Question 28 Which one of these is a correct definition ?
A. Long-term debt is defined as a residual claim on a firm’s assets.
B. Current assets are assets with short lives, such as inventory,
C. Tangible assets are fixed assets such as patents.
D. Current liabilities are debts that must be repaid in 18 months or less.
E. Net working capital equals current assets plus current liabilities.

Question 29 Futures contracts contrast with forward contracts by:
A. Allowing the seller to deliver any day during the delivery month.
B. Requiring contract fulfilment by the two originating parties.
C. Providing an option for the buyer rather than an obligation.
D. Marking to the market on a weekly basis.
E. Allowing the parties to negotiate the contract size.

Question 30 The higher the inventory turnover, the:
A. Lesser the amount of inventory held by a firm.
B. Higher the inventory as a percentage of total assets.
C. Less time inventory items remain on the shelf.
D. Greater the inventory of inventory help by a firm.
E. Longer it takes firm to sell its inventory.

Answer 4

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Question 5

UOP FIN 571 Week 6 Assignment start-up company Signature Assignment (score 80%) NEW

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About Your Signature Assignment: This signature assignment is designed to align with specific program student learning outcome(s) in your program. Program Student Learning Outcomes are broad statements that describe what students should know and be able to do upon completion of their degree. The signature assignments may be graded with an automated rubric that allows the University to collect data that can be aggregated across a location or college/school and used for program improvements.
Purpose of Assignment: The purpose of this assignment is to allow the student an opportunity to apply their understanding of cash flow management, break-even analysis, and short-term and long-term financing in starting and growing a business. The assignment will be presented to the class giving the real world scenario of presenting a proposal to investors. Resources: OECD Database, Corporate Finance
Prepare a 15-slide PowerPoint® content presentation with speaker notes requesting initial funding of $500,000 to start and run a start-up company. The proposed start-up company could be an existing business model (coffee shop, pet store, etc.) or could be something entirely new and exciting.
Create the presentation in the following format, with at least one slide to cover each of the following areas:
1. Title Page
2. Table of Contents
3. Executive Summary
4. Information about the Industry
5. Marketing Plan
6. Competitor Analysis
7. 3 Year Income Statement (Profit & Loss) Projections
8. Include your assumptions for why and how you will achieve your sales growth and what significant expenses and investments you expect to incur to achieve your revenue goals. Assumptions: Sales Growth, Significant Expenses and Investments
9. 3 Year Proposed Funding Schedule (Sources and uses of the funds received.)
10. Break-Even Analysis
Review the following scenarios and assumption, and explain how it impacts your decision to expand: Each should have its own slide just as above;
11. After Year 3, the investors are interested in your company expanding internationally to possibly outsource labor or to reduce manufacturing costs. What countries would you expand to first, and why? What factors would you need to consider in making this decision? Global Expansion: Labor/Mfg. Costs. Country?
12. What is the corporate tax rate in the countries you are considering expanding your business to, and how will that affect your decision to expand globally? (Use OECD Database or another resource to determine the corporate tax rate).
13. The investors want to see a decision tree detailing the decisions you would make if you received $300K now and $200K at the end of three years instead of $500K up front.
14. The investors would like your team to provide advantages and disadvantages of using debt financing versus selling company stock to raise capital for growth.
15. Briefly explain the venture capital process. Does it make sense for your company to raise funds through venture capital?
16. Academic and Business References
17. Feedback
Format your presentation consistent with APA guidelines. You must present this assignment in class to earn full credit. Students who do not present will have a 50% reduction in grade.
Click the Assignment Files tab to submit your assignment

Answer 5

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Question 6

UOP FIN 571 Week 1 Financial Ratio Analysis NEW
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Purpose of Assignment
The purpose of this assignment is to help students gain a better understanding of the financial statements used for corporate financial reporting and the key ratios used to make business decisions.
Assignment Steps
Select a Fortune 500 Company from one of the following industries:
• Pharmaceutical
• Energy
• Retail
• Automotive
• Computer Hardware
Review the balance sheet and income statement in the company’s 2015 Annual Report.
Calculate the following ratios using Microsoft® Excel®:
• Current Ratio
• Quick Ratio
• Debt Equity Ratio
• Inventory Turnover Ratio
• Receivables Turnover Ratio
• Total Assets Turnover Ratio
• Profit Margin (Net Margin) Ratio
• Return on Assets Ratio
Analyze in 1,050 words why each ratio is important for financial decision making.
Submit your analysis as well as your calculations.
Click the Assignment Files tab to submit your assignment.

Answer 6

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Question 7

UOP FIN 571 Week 4 Assignment Rate of Return for Stocks and Bonds

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The purpose of this assignment is to allow the student an opportunity to calculate the rate of return of equity and debt instruments. It allows the student to understand the effects of dividends; capital gains; inflation rates; and how the nominal rate of return affects valuation and pricing. The assignment also allows the student to apply concepts related to CAPM, WACC, and Flotation Costs to understand the influence of debt and equity on the company’s capital structure.
Assignment Steps
Resources: Corporate Finance
Calculate the following problems and provide an overall summary of how companies make financial decisions in no more than 700 words, based on your answers:

1) Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.
2) Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?
3) CAPM: A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?
4) WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company’s weighted average cost of capital (WACC)?
5) Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

Secondly:
The purpose of this assignment is to allow the student an opportunity to explain what it means to have an efficient capital market. Students will gain an understanding of the different levels of market efficiency and how behavioral finance can inhibit reaching market transparency.
Assignment Steps
Resources: Microsoft® Word
Explain in 525 words what it means to have efficient capital market, including:
• Describe the behavioral challenges in achieving efficiency.
• Discuss the three forms of market efficiency.
• What are the implications to corporate finance?
• Would you consider the real estate market an efficient capital market? Please explain why or why not.

Answer 7

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Question 8

UOP FIN 571 Week 3 Researching Industry Financial Statistics NEW

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Purpose of Assignment
The purpose of this assignment is to allow the students an opportunity to complete their financial evaluation of a company using the financial research database Plunkett Research Online. Plunkett Research Online provides in-depth analysis of a company’s financials, comparisons to industry averages, a list of top executives, how the company compares to other competitors in terms of revenue, number of employees, market capitalization and other key financial metrics.
Assignment Steps
Resources: Plunket Research Online located in the Week 3 Electronic Reserve Readings; Microsoft® Excel®
Access the the Plunkett Research database in the University Library by following these steps:
1. Click on the University Library link.
2. Click “Company Directories and Financials” under Library Resources.
3. Click “Plunkett Research Online” under Company Directory and Financials.
4. Review the following “HOW TO USE” videos:
o Plunkett Research Online Overview
o How to Export Company and Exec. Lists
o How to Build-a-Report
o How to Use Industry Analytics
o How to Research an Industry
o How to Use Company Profiles
5. Click “Research A Company.”
6. Select a company (i.e. Walmart) and input into the Search Box.
7. Scroll through the search results to choose the correct company.
8. Click the link to the company profile (in blue).
Review the Company Profile and answer the following questions in Microsoft® Word:
• What is the Ticker Symbol for the company you have selected?
• When was the company established?
• How many employees does it have?
• What is the NAICS Code?
• Who is the CEO?
• Where does the company rank in terms of Total Revenue when compared to its competitors?
• Where does the company rank in terms of Net Income when compared to its competitors?
• Where does the company rank in terms of Return on Assets when compared to its competitors?
• What is the Revenue in 2014 and 2015?
• What was the Gross Margin in 2014 and 2015?
• What was the Earnings per Share in 2014 and 2015?
Save the Company Profile as a PDF document.
Compare the 2015 Company Financials to the Industry Averages and export the results into a Microsoft® Excel® document.
Add a new column in your Microsoft® Excel® document titled “Change” and calculate the difference between the company’s 2015 financial results and the industry averages.
Explain in 1,050 words how the company you selected compares to the industry averages in terms of financial profitability, liquidity and solvency, and why the difference is important. Also review the financial statements over the last three years, and discuss any positive and negative trends would you report to the company’s management.
Submit the calculations as well as the explanation.
Click the Assignment Files tab to submit your assignment.
Note: Grades are awarded based upon individual contributions to the Learning Team assignment. Each Learning Team member receives a grade based upon his/her contributions to the team assignment. Not all students may receive the same grade for the team assignment

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Question 9

UOP FIN 571 Week 4 Connect Problems NEW

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Q-1
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 20 years to maturity, and a coupon rate of 7 percent paid annually.

If the yield to maturity is 8.1 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Q-1 (Set 2)

Watters Umbrella Corp. issued 30-year bonds 2 years ago at a coupon rate of 7.4 percent. The bonds make semiannual payments. If these bonds currently sell for 83 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

2.Microhard has issued a bond with the following characteristics:

Par: $1,000
Time to maturity: 15 years
Coupon rate: 11 percent
Semiannual payments

Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

Q-2 (Set 2)

Union Local School District has bonds outstanding with a coupon rate of 3.7 percent paid semiannually and 15 years to maturity. The yield to maturity on these bonds is 4.3 percent and the bonds have a par value of $5,000.

What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Q-3 (Set 1)

Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 5.5 percent paid semiannually and 16 years to maturity. The yield to maturity of the bond is 5.8 percent.

What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Q-3 (Set 2)

A Japanese company has a bond outstanding that sells for 90 percent of its ¥100,000 par value. The bond has a coupon rate of 5.7 percent paid annually and matures in 19 years.

What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Q-3(Set 3)
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of ? 1000, 25 years to maturity, and a coupon rate of 6.4 percent paid annually. If the yield to maturity is 7.5 percent, what is the current price of the bond?

Q-4 (Set 1)
The next dividend payment by ECY, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $39 per share.

What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Dividend yield %
What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Capital gains yield %

Q-4 (Set 2)
4.Schiller Corporation will pay a $3.14 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

5. Siblings, Inc., is expected to maintain a constant 3.6 percent growth rate in its dividends, indefinitely. The company has a dividend yield of 5.4 percent.

What is the required return on the company’s stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return %
5. (Set 2) The next dividend payment by ECY, Inc., will be $1.60 per share. The dividends are anticipated to maintain a growth rate of 6 percent, forever. The stock currently sells for $30 per share.

What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Q-6 (Set 1)

Ayden, Inc., has an issue of preferred stock outstanding that pays a dividend of $6.75 every year, in perpetuity. This issue currently sells for $93 per share.

What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Q-6 (Set 2)

6. The Starr Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 14 percent on the stock.

What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What will the price be in 7 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?
8. The risk premium for an individual security is computed by:
9. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?
10. Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its cost of equity is 18 percent, and the cost of debt is 6 percent. The relevant tax rate is 30 percent.

What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Question 10 Set 2

Central Systems, Inc. desires a weighted average cost of capital of 9 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

11. Miller Manufacturing has a target debt–equity ratio of .55. Its cost of equity is 14 percent, and its cost of debt is 9 percent. If the tax rate is 40 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,
12. Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $76, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value $90 million, a coupon of 5 percent, and sells for 94 percent of par. The second issue has a face value of $70 million, a coupon of 6 percent, and sells for 104 percent of par. The first issue matures in 20 years, the second in 3 years.
    a. What are the company’s capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
    b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
    c. Which are more relevant?
13. Titan Mining Corporation has 8.9 million shares of common stock outstanding and 330,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 1.45, and the bonds have 15 years to maturity and sell for 118 percent of par. The market risk premium is 7.7 percent, T-bills are yielding 4 percent, and the company’s tax rate is 40 percent.

Answer 9

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