Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset
investment of $2.862 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax
life, after which time it will have a market
What is the profitability index for an investment with the following cash flows given a 7 percent required
return?
Year
0
1
2
3
1.07
0.72
1.21
1.38
0.83
Cash Flow
$38,000
16,200
18,500
17,900
PI = PV(Cash flows after start-up) / PV(Initial cash outflow),
Williams & Cline has a debt-to-equity ratio of 0.5. The pre-tax cost of debt is 6 percent and the
unlevered cost of capital is 19. Calculate the cost of equity if the tax rate is 36 percent. Write
your answer as a percent to one significant digit, and inc
The appropriate discount rate for the following cash flows is 14 percent compounded quarterly.
Year
1
2
3
4
Cash Flow
$700
700
0
1,200
Required:
What is the present value of the cash flows?
rev: 09_17_2012
$1,863.16
$1,797.06
$1,833.73
$1,870.41
$283.1
Th
We are evaluating a project that costs $837,000, has an eleven-year life, and has no salvage value. Assume
that depreciation is straight-line to zero over the life of the project. Sales are projected at 140,000 units per
year. Price per unit is $36, varia
Ying Import has several bond issues outstanding, each making semiannual interest payments. The
bonds are listed in the following table. If the corporate tax rate is 33 percent, what is the aftertax cost
of Ying's debt (leave your answer as an APR)? (Do no
What is the IRR of the following set of cash flows?
Note: This is easiest done in Excel or with a financial calculator, though it can be done through trial and error (w
Year
0
1
2
3
Cash Flow
$9,134
5,000
3,800
5,600
rev: 09_18_2012
26.72%
25.68%
26.2%
27
Consider the following information for Evenflow Power Co.,
Debt:
Common stock:
Preferred stock:
Market:
2,000 bonds that each year pay a 9 percent of
par coupon, have a $1,000 par value, a yield to
maturity of 8.78 percent, 18 years to
maturity, and curre
What is the payback period for the following set of cash flows?
Year
0
1
2
3
4
Cash Flow
$ 2,800
1,800
2,500
1,500
1,900
rev: 09_18_2012
1.70 years
1.35 years
1.40 years
1.42 years
1.47 years
To calculate the payback period, we need to find the time that
Parker and Stone Inc. is looking at setting up a new manufacturing plant in South Park to produce garden
tools. The company bought some land 9 years ago for $7 million. If the land were sold today, the company
would net $10.2 million. The company wants to
Nacho Libre S.A. has 1,000,000 common shares outstanding that trade for $35.00 per share. The
company has also issued one bond with a par value of $80,000,000 that currently trades at 110
percent of par. You observe that the company's required return on s
We are evaluating a project that costs $828,000, has an 14-year life, and has no salvage value. Assume that
depreciation is straight-line to zero over the life of the project. Sales are projected at 119,000 units per year.
Price per unit is $38, variable
Hanover Tech is currently an all equity firm that has 400,000 shares of stock outstanding with a
market price of $40.00 a share. The current cost of equity is 23 percent and the tax rate is 36
percent. The firm is considering permanently adding $8,800,000
f you put up $31,000 today in exchange for a 9.00 percent, 14-year annuity, what will the annual cash
flow be?
rev: 09_17_2012
$2,214.29
$6,267.22
$4,208.13
$3,760.20
$3,981.43
Here we have the PVA, the length of the annuity, and the interest rate. We wan
Find the APR, or stated rate, in each of the following cases.
Required:
(a) An effective interest of 9% compounded semiannually
8.81%
(b) An effective interest of 9% compounded monthly
8.65%
(c) An effective interest of 10% compounded weekly
9.54%
(d) An
Consider the following information:
State of Economy
Recession
Normal
Boom
Probability of State of Economy
0.20
0.60
0.20
Rate of Return if State Occurs
Stock A
Stock B
0.06
-0.20
0.08
0.15
0.14
0.35
Required:
(a)
Calculate the expected return for Stock A
Consider the following information:
Rate of Return if State Occurs
State of Economy
Boom
Good
Poor
Bust
Probability of
State of Economy
.15
.60
.20
.05
Stock A
.31
.16
.03
.11
Stock B
.41
.12
.06
.16
Stock C
.21
.10
.04
.08
Requirement 1:
Your portfolio i
DAR Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered
plan (Plan II). Under Plan I, the company would have 195,000 shares of stock outstanding. Under Plan II,
there would be 145,000 shares of stock outsta
Consider each of the following cases:
Accounting
Break-Even
Case
1
2
3
81,400
126,000
6,275
Unit Price
Unit Variable Cost
$ 40
?
106
$ 31
51
?
Fixed Costs
$ 838,000
2,700,000
124,000
Required:
(a) Find the depreciation for Case 1. (Do not round your inter
Consider the following two mutually exclusive projects:
Year
0
1
2
3
4
Cash Flow (A)
$278,619
27,200
60,000
57,000
409,000
Cash Flow (B)
$16,099
5,675
8,464
13,726
9,423
Whichever project you choose, if any, you require a 6 percent return on your investme
Consider a project to supply 107 million postage stamps per year to the U.S. Postal Service for the
next five years. You have an idle parcel of land available that cost $1,970,000 five years ago; if the
land were sold today, it would net you $2,170,000 af
Consider an asset that costs $237,600 and is depreciated straight-line to zero over its 13-year tax life. The
asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $29,700.
If the relevant tax rate is 32 percent, wh
Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new
machine press for $700,800 is estimated to result in $233,600 in annual pretax cost savings. The press falls
in the MACRS five-year class (MACRS Table
Grohl Co. issued 13-year bonds a year ago at a coupon rate of 9 percent. The bonds make semiannual
payments. If the YTM on these bonds is 10 percent, what is the current bond price?
rev: 09_18_2012
$941.01
$1,693.93
$665.09
$931.01
$958.03
To find the pri
Find the EAR in each of the following cases.
Required:
(a) 8% compounded quarterly
8.24%
(b) 18% compounded monthly
19.56%
(c) 9% compounded daily
9.42%
(d) 16% with infinite compounding
17.35%
rev: 09_17_2012
Explanation:
For discrete compounding, to fin
Given an interest rate of 6.0 percent per year, what is the value at date t = 5 of a perpetual stream of $1,700
payments with the first payment at date t = 10?
rev: 09_29_2015_QC_CS-26908
$21,993.80
$28,433.33
$22,891.51
$21,172.31
$22,442.65
To find the
Major Manuscripts, Inc.
2012 Income Statement
Net sales
Cost of goods sold
Depreciation
$
8,400.00
7,165.00
270.00
Earnings before interest and taxes
Interest paid
$
965.00
61.00
Taxable Income
Taxes
$
904.00
355.00
Net income
Dividends
$
549.00
$
199.00
The common stock of Jensen Shipping has a risk premium of 9.60 percent. What is the market
risk-premium if the company's beta is 1.2? What is expected return on the market if the risk-free
return is 2.00 percent?
Risk premium is 8.00 percent; Market expec
Jiminy's Cricket Farm issued a 30-year, 6 percent coupon bond 4 years ago. The bond makes semiannual coupon payments and sells for 91 percent of its face value. The face value of the debt issue is $22
million and the yield to maturity is 6.736%. The compa
The Down and Out Co. just issued a dividend of $2.81 per share on its common stock. The company is
expected to maintain a constant 5 percent growth rate in its dividends indefinitely. If the stock sells for
$60 a share, what is the company's cost of equit