FIN 3200 - Post Mid-term

Roadside Markets has 8.45 percent coupon bonds outstanding that mature in 10.5 years. The bonds pay interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

$1,091.00

Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today?

$10.82

KNJ Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 a share over the next three years, respectfully. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent?

$12.32

The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent?

$13.89

How much are you willing to pay for one share of LBM stock if the company just paid an annual dividend of $2.24, the dividends increase by 2.3 percent annually and you require a return of 14.8 percent?

$18.33

GEO Inc. has paid annual dividends of $.41, $.47, and $.53 a share over the past three years respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share?

$3.68

Winn Corp. currently sells 9,820 motor homes per year at $45,500 each, and 3,680 luxury motor coaches per year at $89,700 each. The company wants to introduce a new portable camper to fill out its product line. It hopes to sell 4,000 of these campers per year at $14,750 each. An independent consultant has determined that if the new campers are introduced, sales of its existing motor homes will most likely increase by 250 units per year while the sales of its motor coaches will probably decline by 368 units per year. What is the amount that should be used as the annual sales figure when evaluating the portable camper project?

$37,365,400

Overland purchased $387,950 of fixed assets that are classified as three-year property for MACRS. The MACRS rates are .3333, .4445, .1481, and .0741 for years 1 to 4, respectively. What is the amount of the depreciation expense in Year 3 assuming no bonus depreciation is taken?

$57,455.40

A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the project will be $238,900. The net aftertax salvage value is estimated at $67,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 15.2 percent?

-$18,374.86

A project will require $543,000 for fixed assets, $118,000 for inventory, and $142,000 for accounts receivable. Short-term debt is expected to increase by $65,000. The project has a six-year life, The fixed assets will be depreciated straight-line to a zero book value over the life of the project. No bonus depreciation will be taken. The project is expected to generate annual sales of $905,000 with costs of $730,000. What is the project's cash flow at Time 0?

-$738,000

Mullineaux Corporation has a target capital structure of 46 percent common stock, 5 percent preferred stock, and the balance in debt. Its cost of equity is 15.8 percent, the cost of preferred stock is 8.3 percent, and the aftertax cost of debt is 6.8 percent. What is the WACC given a tax rate of 23 percent?

11.02 percent

World Travel has 7 percent, semiannual, coupon bonds outstanding with a current market price of $1,023.46, a par value of $1,000, and a yield to maturity of 6.72 percent. How many years is it until these bonds mature?

12.53 years

Street Corporation's common stock has a beta of 1.33. The risk-free rate is 3.4 percent and the expected return on the market is 10.97 percent. What is the cost of equity?

13.47 percent

The Shoe Outlet has paid annual dividends of $.58, $.66, $.72, and $.75 per share over the last four years, respectively. The stock is currently selling for $10.08 a share. What is the cost of equity?

17.13 percent

The next dividend payment by HG Enterprises will be $1.82 per share with future increases of 2.8 percent annually. The stock currently sells for $38.70 per share. What is the dividend yield?

4.7 percent

Fashion Wear has bonds outstanding that mature in 11 years, pay interest annually, and have a coupon rate of 6.45 percent. These bonds have a face value of $1,000 and a current market price of $994. What is the company's aftertax cost of debt if its tax rate is 21 percent?

5.16 percent

New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $1,022. Interest paid semiannually. What is the yield to maturity?

5.18 percent

The Downtowner has 168,000 shares of common stock outstanding valued at $53 a share along with 13,000 bonds selling for $1,008 each. What weight should be given to the debt when the company computes its weighted average cost of capital?

59.54 percent

A company's current cost of capital is based on:

both the returns currently required by its debt-holders and stockholders.

The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock?

6.41 percent

The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $987. What is the yield to maturity?

7.22 percent

Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just sold for $87 per share. What is the bank's cost of preferred?

8.05 percent

Bonner Metals wants to issue new 20-year bonds. The company currently has 8.5 percent bonds on the market that sell for $994, make semiannual payments, and mature in 7 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par?

8.62 percent

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a current price of $1,108.60. At this price, the bonds yield 7.5 percent. What is the coupon rate?

8.78 percent

The Uptowner will pay an annual dividend of $3.26 a share with future dividends increasing by 2.8 percent annually. What is the market rate of return if the stock is currently selling for $49.10 a share?

9.44 percent

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?

Callable

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation?

Determining the amount of the dividend to be paid per share.

Kelley's Baskets makes handmade baskets and is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project?

Hiring additional employees to handle the increased workload should the firm accept the wreath project

All of the following are related to a proposed project. Which one of these should be included in the cash flow at Time 0?

Initial investment in inventory to support the project

The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following?

Opportunity cost

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?

Right to share in company profits prior to other shareholders.

Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach?

Selling fewer hot dogs because hamburgers were added to the menu

GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?

Sunk

Which one of the following costs was incurred in the past and cannot be recouped?

Sunk

Which one of the following best describes the concept of erosion?

The cash flows of a new project that come at the expense of a firm's existing cash flows

All else constant, a bond will sell at _____ when the coupon rate is ______ the yield to maturity.

a discount; less than

The capital structure weights used in computing a company's weighted average cost of capital:

are based on the market values of the outstanding securities.

Road Hazards has 12-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued:

in registered form.

The difference between a company's future cash flows if it accepts a project and the company's future cash flows if it does not accept the project is referred to as the project's:

incremental cash flows

A company's weighted average cost of capital:

is the return investors require on the total assets of the firm.

The current yield is defined as the annual interest on a bond divided by the:

market price

The cost of preferred stock is computed the same as the:

rate of return on a perpetuity.

Pro forma financial statements can be best described as financial statements:

showing projected values for future time periods

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles?

stand-alone principle