Problem 81 Valuing Bonds
22
Assume semiannual compounding, what is the price of a 8year, zero coupon bond paying $1,000 at maturity if the
YTM is (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g.,
32.16):
Problem 161 EBIT and Leverage
22
Money, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes,
EBIT, are projected to be $36,000 if economic conditions are normal. If there is strong expansion in the eco
Which of the following statement is true?
One must know the discount rate to compute the NPV of a project but one
can compute the IRR without referring to the discount rate.
One must know the discount rate to compute the IRR of a project but one can
compu
Money, Inc., has no debt outstanding and a total market value of $275,000. Earnings before interest and taxes,
EBIT, are projected to be $21,000 if economic conditions are normal. If there is strong expansion in the economy,
then EBIT will be 25 percent h
A stock had returns of 6 percent, 6 percent, 4 percent, and 16 percent over the past four years. What is the
standard deviation of these returns?
8.5 percent
7.5 percent
9.0 percent
7.9 percent
9.4 percent
Average return = (0.06  0.06 + 0.04 + 0.16) / 4
Assume semiannual compounding, what is the price of a 15year, zero coupon bond paying $1,000 at maturity if the
YTM is (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g.,
32.16):
a. 5 percent
Price of the Bond
Problem 131 Calculating Cost of Equity
22
The Dybvig Corporations common stock has a beta of 1.9. If the riskfree rate is 5.0 percent and the expected
return on the market is 12 percent, what is Dybvigs cost of equity capital? (Do not round intermedia
Klingon Cruisers, Inc., purchased new cloaking machinery three years ago for $9.5 million. The machinery can be
sold to the Romulans today for $6.5 million. Klingons current balance sheet shows net fixed assets of $5.2 million,
current liabilities of $2.4
Problem 23 Market Values and Book Values
22
Klingon Cruisers, Inc., purchased new cloaking machinery four years ago for $8 million. The machinery can be
sold to the Romulans today for $7.4 million. Klingon's current balance sheet shows net fixed assets
Fuji Software, Inc., has the following mutually exclusive projects.
Year
0
Project A
$
15,000
1
2
3
Project B
$
18,000
9,500
6,000
2,400
10,500
7,000
6,000
a1. Calculate the payback period for each project. (Do not round intermediate calculations. Round
Youve observed the following returns on Mary Ann Data Corporations stock over the past five years: 13 percent,
13 percent, 20 percent, 25 percent, and 10 percent.
a. What was the arithmetic average return on Mary Anns stock over this fiveyear period? (D
The Dybvig Corporations common stock has a beta of 1.21. If the riskfree rate is 3.5 percent and the expected
return on the market is 11 percent, what is Dybvigs cost of equity capital? (Do not round intermediate
calculations and round your final answer
Suppose a stock had an initial price of $75 per share, paid a dividend of $1.20 per share during the year, and had an
ending share price of $86.
Compute the percentage total return. (Do not round intermediate calculations and round your final answer to 2
All else constant, the net present value of a typical investment project increases when:
the discount rate increases.
each cash inflow is delayed by one year.
the initial cost of a project increases.
the rate of return decreases.
all cash inflows occur du
The owners equity accounts for Hexagon International are shown here:
Common stock
($1 par value)
Capital surplus
Retained
earnings
Total
owners equity
$
30,000
185,000
627,500
$
842,500
a1. If Hexagon stock currently sells for $37 per share and a 10 perc
The Starr Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant
rate of 5 percent per year, indefinitely. Investors require a return of 11 percent on the stock.
What is the current price? (Do not round
Raphael Restaurant is considering the purchase of a $9,000 souffl maker. The souffl maker has an economic life
of five years and will be fully depreciated by the straightline method. The machine will produce 1,500 souffls per
year, with each costing $2.3
Investment X offers to pay you $4,500 per year for nine years, whereas Investment Y offers to pay you $7,000 per
year for five years.
Calculate the present value for Investments X and Y if the discount rate is 5 percent. (Do not round intermediate
calcula
P
Total Initial Outflow
Yearly Maintenance Cost
Year
1,420,000.000
1,020,000.000

Depreciation: Year
Expense
Total Expense
Tax @ 35 % on Depreciation
Actual Cash Outflow (Cash Expense  Tax Savings)
Real Interest (8.5 Inflation @ 1.25)
PV of Interest @ 9
Rio Negro, Inc. Capital Budgeting
Senior management of Rio Negro, Inc. (RNI) has been tasked with deciding the fate of
the Maracas, a small drycargo vessel. The Maracas is a part of a larger fleet responsible for
cargo transportation between ports locate
Mini Case #2: Capital Budgeting at Rio Negro, Inc.
Assignment Overview
Rio Negro, Inc. (RNI) is in the business of transporting cargo between ports in California and Washington. Its fleet
includes a small drycargo vessel, the Maracas. The Maracas is 25 y
Problem 192 Stock Dividends
22
The owners equity accounts for Hexagon International are shown here:
Common stock
($.50 par value)
Capital surplus
Retained
earnings
Total
owners equity
$
46,000
380,000
828,120
$
1,254,120
a1. If Hexagon stock currently
Problem 101 Calculating Returns
22
Suppose a stock had an initial price of $50 per share, paid a dividend of $0.80 per share during the year, and had an
ending share price of $60.
Compute the percentage total return. (Do not round intermediate calculat
Problem 91 Stock Values
22
The Starr Co. just paid a dividend of $1.60 per share on its stock. The dividends are expected to grow at a constant
rate of 6 percent per year, indefinitely. Investors require a return of 10 percent on the stock.
What is the
Problem 412 Present Value and Multiple Cash Flows
22
Investment X offers to pay you $5,500 per year for nine years, whereas Investment Y offers to pay you $8,000 per
year for five years.
Calculate the present value for Investments X and Y if the discou
Problem 51 Calculating Payback Period and NPV
22
Fuji Software, Inc., has the following mutually exclusive projects.
Year
0
Project A
$
1
2
3
32,000
Project B
$
35,000
18,000
14,500
4,100
19,000
13,000
14,500
a1. Calculate the payback period for each
Problem 61 Calculating Project NPV
22
Raphael Restaurant is considering the purchase of a $10,300 souffl maker. The souffl maker has an economic life
of five years and will be fully depreciated by the straightline method. The machine will produce 2,15