Capital budgeting is a method companies use to determine whether a new project or
investment opportunity is worth pursuing by comparing its expected discounted cash flow with
its internal rate of return. The discounted cash flow involves the value of the
5- Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). The firm is
operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation,
Homework Assignment 3
Week # 3
Problems ( Pg.210-211)
5-1 Bond Valuation with Annual Payments
Jackson Corporations bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a
$1,000 par value, and the coupon interest rate is 8%.
Suppose a firm estimates it's overall cost of capital for the coming year to be 10%. What
might be reasonable costs of capital for average-risk, high-risk, and low-risk projects?
Different projects have different risk-reward characteristics. A project wit
(7-2) Boehm Incorporated is expected to pay $1.50 per share dividend at the end of this
year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year.
The required rate of return on the stock rs, is 15%. What is the value per s
.(TCO A) Which of the following statements is CORRECT? (Points:10)
One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
It is generally easier to transfer ones ownership interest in a partnership than
Last year Cole Furnaces had $5,000,000 in operating income (EBIT). The company had a
net depreciation expense of $1,000,000 and an interest expense of $1,000,000; its
corporate tax rate was 40%. The company has $14,000,000 in operating current assets
and
FIN 6406 Corporate Finance
Practice Questions
Problem Set 2
1.
Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value
of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the
curre
Questions:
(5-2) Short-term interest rates are more volatile than long-term interest rates, so shortterm bond prices are more sensitive to interest rate changes than are long-term bond
prices. Is this statement true or false? Explain.
False. As the time t
Case Study
Financial Forecasting
Growing Pains
We are growing too fast, said Mason. I know I shouldnt complain, but we better have the
capacity to fill the orders or well be hurting ourselves. Vicky and Mason Coleman started their oatmeal
snacks company i
What is a firm's fundamental, or intrinsic, value? What might cause a firm's intrinsic value to be different than its
actual market value?
Intrinsic value is the Underlying value of a firm separate from its market value or share prices, and based on both
6. Assume that you are a consultant to Broske Inc., and you have been provided with the
following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of
common from retained earnings based on the DCF approach?
a- 9.42%
b- 9.91%
c- 10
Question:Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend
to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and
thereafter. The required return on this low-risk stock is 9.00%.
Hi there,
Your answer is D.
Here is some information regarding rights of Common Shareholders:
egal Rights of Common Stockholders
Common stockholders have the following legal rights:
* The right to receive stock certificates as evidence of ownership.
* The
3.1
DSO =
365
turnover
=
20
Sales
AR
=
18.25
AR
=
$400,000
assets
equity
=
2.5
1
debt
assets
=
1.5
2.5
7300000
=
I'm currently stuck trying to find the answers to
be below practice questions. Can you show all
work to help me understand how to get the
answ
4. Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and
would have a zero salvage value. No new working cap
A share of common stock just paid a dividend of $1.00 (D0 = $1.00). If the expected long-run
growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is
the stock price?
Solution
P1
= D0 (1 + g) / (Ke g)
= 1.00 (1 + .05
What are bond ratings, and how can they affect investor returns? What
are split ratings?
Bond ratings are the grades given to the bonds according to their credit
ratings. These ratings are given by independent rating services to
classify bonds according t
Question:What are bond ratings? Do ratings remain the same during the entire life of the bond?
Solution:Bonds are debt issued by governments or corporations as a way to raise capital. Like other fixed
income products, bonds offer payments at a predetermin
Please Press F2 to see the Computation how to derived the value
Question:
What are possible capital components in the WACC equation?
Solution: Computation of the WACC
Capital Components are
Debt
Preferred Stock
Common Stock
Total value
Cost of Debt
Cost o
Question:
Discuss the decisions and transactions that create cash flows for a project over its lifetime.
Solution:
Over the lifetime of a project, many factor influences the cash flows. The discipline decision can
be divided into short term and long term
Project
Week 5
Pg. ( Pg.460)
11-7 New Project Analysis
You have been asked by the president of your company to evaluate the proposed acquisition of a new
spectrometer for the firms R&D department. The equipments basic price is $70,000, and it would cost a
Homework Assignment 6
Week # 6
Problems ( Pg.503)
12-1 AFN Equation
Baxter Video Productss sales are expected to increase by 20% from $5 million in 2010 to $6 million in 2011. Its assets
totaled $3 million at the end of 2010. Baxter is already at full cap
Homework Assignment 3
Week # 3
Problems ( Pg.210-211)
5-1 Bond Valuation with Annual Payments
Jackson Corporations bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a
$1,000 par value, and the coupon interest rate is 8%.