Quiz_1_Version_B_Answers_Fin_351_Fall_2010[1] - FIN 351...

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FIN 351 Quiz 1 Version B Student: ___________________________________________________________________________ 1. What is the cost of equity for Zel Mining if the company pays an expected dividend of $2.00 next year and has a payout ratio of 30 percent, a ROE of 20 percent, and a stock price of $40? A. 11% B. 14% C. 17% D. 19% 2. Tech Bust has determined it could issue $1,000 face value bonds with an 8 percent coupon paid semi-annually and a 5 year maturity at $900 per bond. If the tax rate is 35 percent, its before-tax cost of debt is? A. 5.0% B. 5.3% C. 8.0% D. 10.6% Table 1 Variable Old New BV 200 MV 350 700 Sales 100 175 Expenses 50 75 Depreciation 20 30 Your boss tells you they want to replace old equipment with new equipment. She gives you the following numbers in Table 1 which are the numbers for the life of the project. The corporate tax rate is 35% 3. Based on Table 1 calculate the approximate initial outlay. A. $350 B. $400 C. $700 D. $850 4. Based on Table 1 calculate the operating cash flow. A. $36 B. $70 C. $75 D. $100
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5. Chaser Bank invests $500 million in a project. The PV is 700 million. Chaser is a public company that has 150 million shares outstanding and price of $20. The investment is new information. What should be the effect of the project on the stock price? A. $20.00. B. $20.25. C. $21.30 D. $22.00. 6. The initial cash outlay is $100,000 and the project life is 3 years. Cash flow generated each year is $70,000. The cost of capital is 8%. The company can abandon the project after the first year and receive $125,000. Should they abandon? A. Abandon B. Do not abandon 7. The cost of debt can be determined using the yield-to-maturity and the bond rating approaches. If the bond rating approach is used, the A. Coupon is the yield. B. Yield is based on the interest coverage ratio. C. Company is rated and the rating can be used to assess the yield on the company’s debt. D. After-tax cost of the debt is not known. 8. Morgan Insurance issued preferred stock at $26 per share with a $2.00 fixed dividend. What is the cost of the preferred equity? A. 7.7%
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This note was uploaded on 09/06/2011 for the course FIN 351 taught by Professor Li during the Spring '09 term at S.F. State.

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Quiz_1_Version_B_Answers_Fin_351_Fall_2010[1] - FIN 351...

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