exam3c.ch9ch10ch12ch13ch14ch15

exam3c.ch9ch10ch12ch13ch14ch15 - Name Webct User Name...

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Name __________________________________ Webct User Name __________________________________ University of Houston C. T. Bauer College of Business Finance 3332 Principles of Financial Management Fall, 2008 Exam 3C To receive full credit, show all work—equations in variable form, equations with numbers plugged in—and clearly indicate your answer. All inputs must be shown when using financial functions. 1.   A  project  with an  installed  cost  of \$100,000  requires  an  additional  working  capital  investm ent  of \$4000  and  ha   estimated  salvage  value  of \$3000.  The  project  replace s  a  piece  of equipm ent  that has  an  estimated  salvage  val   and  a  book  value  of \$1000.  The  firm’s  marginal  tax rate  is 40  percent,  and  a  return  of 13  percent  is required  on     of this  type.  What is the   Net Investment  for this  project?  (4) 2.  Using  the  data  in the  following  table,  calculate  the  firm’s  cost  of capital for a  capital  budget  of \$30  million.  (6) Component Costs of Capital Before  tax cost  of debt 4% Cost  of retained  earnings 7% Cost  of new  equity 9% Capital Structure Debt 20% Com m o n  stock 80% Other Info Marginal  tax rate 40% Expected  retained  earnings \$15  million 3.  Manage m e nt  is planning  for a  capital  budget  of \$100  million.  Retained  earnings  for the  coming  year  are  expec   \$4  million,  and  the  firm’s  marginal  tax rate  is 40  percent. The  firm  can  net  \$923.13  on  each  new  bond,  \$1000  par,  4.5  percent  coupon  paid  annually,  thirty years  to matur The  firm  can  issue  \$2.40  preferred  stock  to net  the  firm  \$40  per  share. The  firm’s  com m o n  stock  just paid  an  annual  dividend  of \$1.20,  its market  price  is \$41.60  per  share,  and  investo   a  growth  rate  of about  four percent  per  year.  Flotation  costs  on  new  com m o n  stock  are  \$10.40  share.   Calculate  and  clearly  identify the  compon e nt  cost  of each  source  of capital.  (10)

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Use the following information for questions 4 and 5. Buck  Industries  is planning  an  expansion  costing  \$800,000.  It can  finance  with new  equity  sold  to net  \$20  per  sh   with the  sale  of bonds  with a  6%  coupon.  The  firm’s  marginal  tax rate  is 40%,  and  Buck  currently  has  the  followi   simplified  balance  she et. Liabilities and Capital
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exam3c.ch9ch10ch12ch13ch14ch15 - Name Webct User Name...

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