Old Exam Questions - Financial Statements, Cash Flow, and Taxes
Page 34 of 44 Pages
4
$28,000.00
$0.00
$0.00
$28,000.00
…
…
…
…
…
∞
$28,000.00
$0.00
$0.00
$28,000.00
49.
Assume that you calculate that the market value added (MVA) or net present value
(NPV) of this firm is $24,000. Based on this information, determine the economic
value added (EVA) for each year.
A.
$6,000
B.
$4,000
C.
$7,000
D.
$5,000
E.
$3,000
50.
Now, instead of the WACC calculated above, assume that the firm initially raises the
$200,000 of capital by issuing $100,000 of debt at a before-tax cost of debt (r
D
) of
5.0% (the tax rate is 40%), and $100,000 of equity at a cost of stock (r
S
) of 13.0%: you
should now be able to calculate the WACC (which may not be the same as in the
problem above), the enterprise value, and the new market value of the firm’s equity.
Given this market value, and assuming that the firm does not rebalance back to a
50/50 debt equity ratio, but that WACC does remain at its original level, determine
what the new, implied cost of equity must be (HINT1: you can not unlever and relever
beta for this problem; you must use the logic that we discussed and demonstrated in
class. HINT2: work backwards from NOPAT to determine what EBIT must be, and
then work forward to determine, and look at the value of, interest payments versus
dividend payments.)
A.
9.64%
B.
9.28%
C.
9.82%
D.
10.00%
E.
9.46%
51.
Assume that you and your significant other each had total ordinary taxable income of
$75,800 (assume no capital gains or dividend income) and calculated your taxes using
the 2007 Single Tax Rates. Using the 2007 Tax Tables in the exam handout,
determine the amount of the marriage penalty if you had files jointly using the 2007
Married Tax Rates.
A.