Sample - Sample Exam 4 1. Wilson's has 10,000 shares of...

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Sample Exam 4 1. Wilson's has 10,000 shares of common stock outstanding at a market price of $35 a share. The firm also has a bond issue outstanding with a total face value of $250,000 which is selling for 102 percent of face value. The cost of equity is 11 percent while the pre-tax cost of debt is 8 percent. The firm has a beta of 1.1 and a tax rate of 34 percent. What is Wilson's weighted average cost of capital? A. 8.59 percent B. 8.72 percent C. 9.08 percent D. 9.63 percent E. 10.05 percent 2. Martin Enterprises sells motor homes and campers and currently has an after-tax cost of capital of 7 percent. Nagle's sells off-road dirt bikes and has an after-tax cost of capital of 13 percent. Martin Enterprises is considering adding dirt bikes as part of their sales lineup. They estimate that sales from these bikes could become 10 percent of their overall sales. The initial cash outlay for this project is $50,000. The expected net cash inflows are $8,000 a year for nine years. What is the net present value of this project to Martin Enterprises? A. -12,003.66 B. -$8,946.76 C. -$1,007.07 D. $2,121.86 E. $2,886.02 3. Tony's Pizza is considering a new project that they consider to be a little riskier than their current operations. Thus, management has decided to add an additional 2 percent to their company's overall cost of capital when evaluating this project. The project has an initial cash outlay of $42,000 and projected cash inflows of $15,000 in year one, $25,000 in year two, and $12,000 in year three. The firm uses 35 percent debt and 65 percent common stock as their capital structure. The company's cost of equity is 13 percent while the after-tax cost of debt for the firm is 6 percent. What is the projected net present value of the new project? A. -$520.29 B. -$127.08 C. $26.18 D. $413.39 E. $906.49 4. The Delta Co. owns retail stores that market home building supplies. Largo, Inc. builds single family homes in residential developments. Delta has a beta of 1.22 and Largo has a beta of 1.34. The risk-free rate of return is 4 percent and the market risk premium is 6.5 percent. What should Delta use as their cost of equity if they decide to purchase some land and create a new residential community? A. 11.93 percent B. 12.32 percent C. 12.43 percent D. 12.57 percent E. 12.71 percent
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5. You purchased 300 shares of Deltona, Inc. stock for $44.90 a share. You have received a total of $630 in dividends and $14,040 in proceeds from selling the shares. What is your capital gains yield on this stock? A. 4.06 percent B. 4.23 percent C. 4.68 percent D. 8.55 percent E. 8.91 percent 6. Which of the following tend to reinforce the argument that the financial markets are efficient? I. Information spreads rapidly in today's world.
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This note was uploaded on 12/13/2009 for the course MBA 816 taught by Professor Terry during the Spring '09 term at Fort Hays.

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Sample - Sample Exam 4 1. Wilson's has 10,000 shares of...

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