TUTORIAL 6 BLOCK 2.pdf

# TUTORIAL 6 BLOCK 2.pdf - BUSE 2000 TUTORIAL 6 BLOCK 2 2018...

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BUSE 2000 TUTORIAL 6 BLOCK 2: 2018 CHAPTER 19 1. Given the following data for year-1: Profits after taxes = \$20 millions; Depreciation = \$6 millions; Interest expense = \$4 millions; Investment in fixed assets = \$12 millions; and Investment in working capital = \$4 millions; Calculate the free cash flow (FCF) for year 1: a. \$4 millions b. \$6 millions c. \$10 millions d. None of the above 2. A company supports R20 000 of debt and R80 000 of equity. Its cost of debt is 6% and the cost of equity is 10.8%. The tax rate for the firm is 35%. What will be its new WACC if it alters its capital structure to 50% debt ratio? Assume that the cost of debt remains constant after refinancing. a. 9.42% b. 13.68% c. 10.8% d. 8.79% 3. The Granite Paving Co. wants to be levered at a debt equity ratio of 1.5. The before- tax cost of debt is 11% and the cost of equity for an all equity firm is 14%. What will be the firm's cost of levered equity? (Assume a tax rate of 33%.) a. 22% b. 16% c. 17% d. None of the above 4. A project costs \$15 million and is expected to produce cash flows of \$3 million a year for 10 years. The opportunity cost of capital is 14%. If the firm has to issue stock to

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• Fall '17
• D. McClelland
• Forward rate, United States dollar, Forward contract, Spot price

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