1. (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? (Points : 10) $23.11 $23.70 $24.31 $24.93 $25.57 2. (TCO D) If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stocks expected dividend yield for the coming year? (Points : 10) 4.42% 4.66% 4.89% 5.13% 5.39% 3. (TCO D) Rebellos preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return? (Points : 10) 6.62% 6.82% 7.03% 7.25% 7.47% 4. (TCO E) 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? (Points : 10) Increase the dividend payout ratio for the upcoming year. Increase the percentage of debt in the target capital structure. Increase the proposed capital budget. Reduce the amount of short-term bank debt in order to increase the current ratio. Reduce the percentage of debt in the target capital structure. 5. (TCO E) The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firms overall WACC is 12%. The CFO believes that this is the correct WACC for the companys average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects. The CEO disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If the CEOs position is accepted, what is likely to happen over time? (Points : 10) The company will take on too many high-risk projects and reject too many low-risk projects. The company will take on too many low-risk projects and reject too many high-risk projects. Things will generally even out over time, and, therefore, the firms risk should remain constant over time. The companys overall WACC should decrease over time because its stock price should be increasing. The CEOs recommendation would maximize the firms intrinsic value. 6. (TCO D) Butcher Timber Company hired your consulting firm to help them estimate the cost of common equity. The yield on the firms bonds is 8.75%, and your firms economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firms own cost of debt. What is an estimate of the firms cost of common from retained earnings? (Points : 10) 12.60% 13.10% 13.63% 14.17% 14.74% 7. (TCO F) Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the projects NPV? Note that a pr
ojects expected NPV can be negative, in which case it will be rejected. WACC: 10.00% Year 0 1 2 3 Cash flows -$1,050 $450 $460 $470 (Points : 10) $ 92.37 $ 96.99 $101.84 $106.93 $112.28 8. (TCO F) Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the projects IRR? Note that a projects IRR can be less than the WACC (and even negative), in which case it will be rejected. Year 0 1 2 3 4 5 - Cash flows -$9,500 $2,000 $2,025 $2,050 $2,075 $2,100 (Points : 10) 2.08% 2.31% 2.57% 2.82% 3.10% 9. (TCO F) Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the projects discounted payback? WACC: 10.00% Year 0 1 2 3 4 Cash flows -$950 $525 $485 $445 $405 (Points : 10) 1.61 years 1.79 years 1.99 years 2.22 years 2.44 years 10. (TCO H) Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a three-year tax life, would be depreciated by the straight-line method over its three-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the projects three-year life. What is the projects NPV? Risk-adjusted WACC Net investment cost (depreciable basis) Straight-line deprec. rate Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate 10.0% $65,000 33.333% $65,500 $25,000 35.0% a. $15,740 b. $16,569 c. $17,441 d. $18,359 e. $19,325 Indicate your choice for your answer a,b,c,d,e first and then show your work/explain your answer so as to earn partial credit in the event you selected the incorrect answer. Should be in excel Problems o 16-1 Cash Management o 16-2 Receivables Investment o 16-3 Cost of Trade Credit o 16-4 Cost of Trade Credit o 16-5 Accounts Payable (16-1) Cash Management Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firms inventory level and increase the firms inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will be freed up? (16-2) Receivables Investment Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the companys average accounts receivable? (16-3) Cost of Trade Credit What is the nominal and effective cost of trade credit under the credit terms of 3/15, net 30? (16-4) Cost of Trade Credit A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailers effective cost of trade credit? (16-5) Accounts Payable