85_Final_Exam_-_Problems__BUS_5440.pdf - 8.5 Final Exam Problems BUS 5440 Financial Management[2020 Summer I 8.5 FINAL EXAM PROBLEMS Due Jun 28 at

85_Final_Exam_-_Problems__BUS_5440.pdf - 8.5 Final Exam...

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Unformatted text preview: 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] 8.5 FINAL EXAM - PROBLEMS Due Jun 28 at 11:59pm Points 100 Questions 10 Available May 4 at 12am - Jun 28 at 11:59pm about 2 months Time Limit 90 Minutes Instructions Final Exam – Problems Covers Chapters 9, 10, 11, 14, 15, and 21 10 multiple choice problems Time limit:1.5 hours. Due by Sunday at 11:59 p.m. ET. Attempt History LATEST Attempt Time Score Attempt 1 56 minutes 90 out of 100 (https://floridatech.instructure.com/courses/3732/quizzes/23009/history?version=1) Score for this quiz: 90 out of 100 Submitted Jun 28 at 8:29pm This attempt took 56 minutes. Question 1 10 / 10 pts Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common equity assuming no flotation costs? 11.10% Final Exam - Problems_ BUS 5440 Financial.html 1/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] 11.68% 12.30% Correct! 12.94% 13.59% Question 2 10 / 10 pts Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company’s tax rate is 40%. What is the component cost of debt for use in the WACC calculation? 4.28% 4.46% Correct! 4.65% 4.83% 5.03% Question 3 10 / 10 pts Aaron's Rentals has 58,000 shares of common stock outstanding at a market price of $36 a share. The common stock just paid a $1.64 annual dividend and has a dividend growth rate of 2.8 %. There are 12,000 shares of 6 % preferred stock outstanding at a market price Final Exam - Problems_ BUS 5440 Financial.html 2/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] of $51 a share. Preferred stock pays a dividend of $6 a year The outstanding bonds mature in 17 years, have a total face value of $750,000, a face value per bond of $1,000, and a market price of $1,011 each. The bonds pay 8 % interest, semiannually. The tax rate is 34 %. What is the firm's weighted average cost of capital? Correct! 7.74 % 8.68 % 9.29 % 9.97 % 10.30 % 10 / 10 pts Question 4 Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash flows -$500 $150 $200 $300 2.03 years 2.25 years Correct! 2.50 years 2.75 years 3.03 years Final Exam - Problems_ BUS 5440 Financial.html 3/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] 10 / 10 pts Question 5 Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. WACC: 10.00% Year 1 2 3 0 Cash flows Correct! -$1,050 $450 $460 $470 $ 92.37 $ 96.99 $101.84 $106.93 $112.28 10 / 10 pts Question 6 Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the project with the higher IRR will also have the higher NPV, i.e., no conflict will exist. WACC: 10.00% Year 1 2 3 4 0 Final Exam - Problems_ BUS 5440 Financial.html 4/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] CFS -$1,025 $650 $450 $250 $50 CFL -$1,025 $100 $300 $500 $700 $5.47 $6.02 $6.62 $7.29 Correct! $7.82 10 / 10 pts Question 7 Fitzgerald Computers is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow? Equipment cost (depreciable basis) $65,000 Straight-line depreciation rate 33.333% Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Interest Expense Tax rate $4,000 35.0% $28,115 $28,836 Final Exam - Problems_ BUS 5440 Financial.html 5/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] $29,575 Correct! $30,333 $31,092 10 / 10 pts Question 8 TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project’s 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project’s NPV? (Hint: Cash flows are constant in Years 1-3). WACC Pre-tax cash flow reduction for other products (cannibalization) 10.0% $5,000 Investment cost (depreciable basis) $80,000 Straight-line deprec. rate 33.333% Sales revenues, each year for 3 years $67,500 Annual operating costs (excl. deprec.) $25,000 Tax rate 35.0% $3,636 Correct! $3,828 $4,019 Final Exam - Problems_ BUS 5440 Financial.html 6/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] $4,220 $4,431 10 / 10 pts Question 9 Dentaltech Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be? EBIT Interest rate $2,000,000 Capital budget $850,000 10% % Debt 40% Debt outstanding $5,000,000 % Equity 60% Shares outstanding $5,000,000 Tax rate 40% 37.2% 39.1% 41.2% Correct! 43.3% 45.5% Question 10 Final Exam - Problems_ BUS 5440 Financial.html 0 / 10 pts 7/8 7/6/2020 8.5 Final Exam - Problems: BUS 5440 Financial Management [2020 Summer I] What is the amount of the annual interest tax shield for a firm with $3 million in debt that pays 12% interest if the firm is in the 35% tax bracket? orrect Answer $126,000 ou Answered $234,000 $360,000 $1,050,000 Quiz Score: 90 out of 100 Final Exam - Problems_ BUS 5440 Financial.html 8/8 ...
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