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Corporate Finance
In the previous problem, suppose fixed costs are $175,000. What is the operating cash flow at 46,000 units? The degree of operating leverage?In previous problemAt an output level of 53,000 units, you
A proposed project has fixed costs of $83,000 per year. The operating cash flow at 9,100 units is $102,900. Ignoring the effect of taxes, what is the degree of operating leverage? If units sold rise
In the previous problem, what will be the new degree of operating leverage in each case?In previous problem,At an output level of 17,500 units, you have calculated that the degree of operating
You are considering a new product launch. The project will cost $1,750,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 190 units
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $715 per set and have a variable cost of $385 per set. The company has spent $150,000 for a marketing study that
Hybrid cars are touted as a "green" alternative; however, the financial aspects of hybrid ownership are not as clear. Consider the 2013 Volkswagen Touareg hybrid, which had a list price of $13,190
Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $5,200,000 investment in threading equipment to get the project
Use the results of Problem 26 to find the degree of operating leverage for the company in Problem 27 at the base-case output level of 35,000 tons. How does this number compare to the sensitivity
We are evaluating a project that costs $864,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected
In each of the following cases, find the unknown variable:
1. How sensitive is the NPV to changes in the price of the new smart phone?2. How sensitive is the NPV to changes in the quantity sold of the new smart phone?Shelley Couts, the owner of Conch
Suppose a stock had an initial price of $79 per share, paid a dividend of $1.45 per share during the year, and had an ending share price of $88. Compute the percentage total return?
You bought one of Great White Shark Repellant Co.'s 6.5 percent coupon bonds one year ago for $1,090. These bonds make annual payments and mature 14 years from now. Suppose you decide to sell your
A stock has had the following year- end prices and dividends:Year ________Price ______Dividend1 ............. $51.50 ................ . -2 ................59.32 ............... $.653................
Suppose the returns on long-term corporate bonds are normally distributed. Based on the historical record, what is the approximate probability that your return on these bonds will be less than -2.1
Suppose the returns on long-term corporate bonds and T-bills are normally distributed. Based on the historical record, use the NORMDIST function in Excel to answer the following questions:a. What is
Suppose you bought a bond with an annual coupon of 7 percent one year ago for $970. The bond sells for $940 today.a. Assuming a $1,000 face value, what was your total dollar return on this investment
What was the average annual return on large-company stock from 1926 through 2013:a. In nominal terms?b. In real terms?
Refer to Table 12.1 in the text and look at the period from 1970 through 1975.a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period.b. Calculate the
You've observed the following returns on Crash-n-Bum Computer's stock over the past five years: 7 percent, -13 percent, 21 percent, 34 percent, and 15 percent.a. What was the arithmetic average
Given the information in Problem 10, what was the average real risk-free rate over this time period? What was the average real risk premium?In Problem 10Suppose the average inflation rate over this
Over a 40-year period an asset had an arithmetic return of 10.4 percent and a geometric return of 8.8 percent. Using Blume's formula, what is your best estimate of the future annual returns over 5
1. What advantages do the mutual funds offer compared to the company stock?2. Assume that you invest 5 percent of your salary and receive the full 5 percent match from S&S Air. What EAR do you earn
What are the portfolio weights for a port-folio that has 135 shares of Stock A that sell for $48 per share and 165 shares of Stock B that sell for $29 per share?
Returns and Standard Deviations Consider the following information:
Asset W has an expected return of 11.8 percent and a beta of 1.15. If the risk-free rate is 3.7 percent, complete the following table for portfolios of Asset W and a risk-free asset. Illustrate the
Stock Y has a beta of 1.2 and an expected return of 11.4 percent. Stock Z has a beta of .80 and an expected return of 8.06 percent. If the risk-free rate is 2.5 percent and the market risk premium
You own a portfolio that has $2,650 invested in Stock A and $4,450 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return
A stock has a beta of 1.14 and an expected return of 10.5 percent. A risk-free asset currendy earns 2.4 percent.a. What is the expected return on a portfolio that is equally invested in the two
You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table:Asset _________Investment
You have $100,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 13.6 percent. If Stock X has an expected return of 11.4
Suppose you observe the following situation:Security ______Beta _________Expected ReturnPete Corp............... 1.21 .................. 1079Pete Corp................ 83 ....................
Suppose you observe the following situation:a. Calculate the expected return on each stock.b. Assuming the capital asset pricing model holds and Stock A's beta is greater than Stock B's beta by
Calculate the expected return:State of Economy ____Probability of State of Economy _____Portfolio Return If State OccursRecession ..............................
Based on the following information, calculate the expected return:State of Economy............Probability of State of Economy.......Portfolio Return If State OccursRecession
Based on the following information, calculate the expected return and standard deviation for the two stocks:State of Economy Probability of State of Economy Rate of Return If State OccursStock A
Consider the following information:a. What is the expected return on an equally weighted portfolio of these three stocks?b. What is the variance of a portfolio invested 20 percent each in A and B
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.32 and the total portfolio is equally as risky as the market, what must the beta be for
A stock has a beta of 1.15, the expected return on the market is 10.3 percent, and the risk-free rate is 3.8 percent. What must the expected return on this stock be?
A stock has an expected return of 10.2 percent, the risk-free rate is 4.1 percent, and the market risk premium is 7.2 percent. What must the beta of this stock be?
A stock has an expected return of 11.05 percent, its beta is 1.13, and the risk-free rate is 3.6 percent. What must the expected return on the market be?
A stock has an expected return of 12.15 percent, its beta is 1.31, and the expected return on the market is 10.2 percent. What must the risk-free rate be?
You own a portfolio that is 35 percent invested in Stock X, 20 percent in Stock Y, and 45 percent in Stock Z. The expected returns on these three stocks are 8 percent, 16 percent, and 11 percent,
You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 11.5 percent and Stock Y with an expected return of 9.4 percent. If your goal is to create a
A portfolio is invested 25 percent in Stock G, 55 percent in Stock J, and 20 percent in Stock K. The expected returns on these stocks are 8 percent, 14 percent, and 18 percent, respectively. What is
1. Go to finance.yahoo.com and download the ending monthly stock prices for Colgate-Palmolive for the last 60 months. Use the adjusted closing price, which adjusts for dividend payments and stock
Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. The company also has two bond issues outstanding. The first bond
In Problem 12, suppose the most recent dividend was $3.90 and the dividend growth rate is 6 percent. Assume that the overall cost of debt is the weighted average of that implied by the two
Given the following information for Watson Power Co., find the WACC. Assume the company's tax rate is 35 percent.Debt: 10,000 6.4 percent coupon bonds outstanding, $1,000 par value, 25 years to
Titan Mining Corporation has 7.3 million shares of common stock outstanding, 220,000 shares of 4.5 percent preferred stock outstanding, and 120,000 6.5 percent semiannual bonds outstanding, par
Suppose your company needs $24 million to build a new assembly line. Your target debt-equity ratio is .60. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3
Pardon Me, Inc., recently issued new securities to finance a new TV show. The project cost $30 million, and the company paid $1.9 million in flotation costs. In addition, the equity issued had a
Epley Industries stock has a beta of 1.15. The company just paid a dividend of $.45, and the dividends are expected to grow at 4 percent. The expected return on the market is 11 percent, and
You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2.95 million this year. Depreciation, the increase in net working capital, and capital spending
In the previous problem, suppose you believe that sales in five years will be $21.5 million and the price-sales ratio will be 2.7. What is the share price now?In previous problem,You have looked at
Sheaves Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $48 million to build. When the company issues new equity, it incurs a flotation cost of 8 percent.
Stock in Daenerys Industries has a beta of .95. The market risk premium is 7 percent, and T-bills are currently yielding 3.6 percent. The company's most recent dividend was $2.05 per share, and
Suppose Stark, Ltd., just issued a dividend of $2.08 per share on its common stock. The company paid dividends of $1.71, $1.82, $1.93, and $1.99 per share in the last four years. If the stock
The Absolute Zero Co. just issued a dividend of $3.40 per share on its common stock. The company is expected to maintain a constant 4.5 percent growth rate in its dividends indefinitely. If the stock
Lannister Manufacturing has a target debt-equity ratio of .35. Its cost of equity is 12 percent, and its cost of debt is 6 percent. If the tax rate is 35 percent, what is the company's WACC?
Fyre, Inc., has a target debt-equity ratio of .85. Its WACC is 9.9 percent, and the tax rate is 35 percent.a. If the company's cost of equity is 14 percent, what is its pretax cost of debt?b. If
Caughlin Company needs to raise $65 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .60. It's considering building a new $65 million manufacturing
Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 97 percent of face value. The issue makes semiannual payments
1. Most publicly traded corporations are required to submit quarterly (10Q) and annual reports (10K) to the SEC detailing the financial operations of the company over the past quarter or year,
Hickock, Inc., is proposing a rights offering. Presently there are 350,000 shares outstanding at $64 each. There will be 50,000 new shares offered at $58 each.a. What is the new market value of the
The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:Stock price
In the previous problem, what would the ROE on the investment have to be if we wanted the price after the offering to be $84 per share? (Assume the PE ratio remains constant.) What is the NPV of this
Prahm Corp. wants to raise $5.5 million via a rights offering. The company currently has 580,000 shares of common stock outstanding that sell for $45 per share. Its underwriter has set a
The Woods Co. and the Mickelson Co. have both announced IPOs at $40 per share. One of these is undervalued by $11, and the other is overvalued by $3, but you have no way of knowing which is which.
Cye, Inc., has 195,000 shares of stock outstanding. Each share is worth $73, so the company's market value of equity is $14,235,000. Suppose the firm issues 30,000 new shares at the following prices:
Earon.In to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $29 per share, but the book value per share is $7. Net income is currently
Ren-Stimpy International is planning to raise fresh equity capital by selling a large new issue of common stock. Ren-Stimpy is currently a publicly traded corporation, and it is trying to choose
Bell Hill Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $74. The current price is $79 per share, and there are 27 million shares outstanding. The
The Valhalla Corporation needs to raise $75 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the
In the previous problem, if the SEC filing fee and associated administrative expenses of the offering are $900,000, how many shares need to be sold?
RAK, Inc., has no debt outstanding and a total market value of $165,000. Earnings before interest and taxes, EBIT, are projected to be $21,000 if economic conditions are normal. If there is strong
Twice Shy Industries has a debt-equity ratio of 1.5. Its WACC is 8.4 percent, and its cost of debt is 5.9 percent. The corporate tax rate is 35 percent.a. What is the company's cost of equity
Braxton Corp. has no debt but can borrow at 6.4 percent. The firm's WACC is currently 10.2 percent, and the tax rate is 35 percent.a. What is the company's cost of equity?b. If the firm converts to
Tool Manufacturing has an expected EBIT of $67,000 in perpetuity and a tax rate of 35 percent. The firm has $139,000 in outstanding debt at an interest rate of 6.85 percent, and its unlevered cost of
Jet Corporation expects an EBIT of $23,500 every year forever. The company currently has no debt, and its cost of equity is 15 percent.a. What is the current value of the company?b. Suppose the
The Day Company and the Knight Company are identical in every respect except that Day is not levered. Financial information for the two firms appears in the following table. All earnings streams are
DAR 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 n,
Haskell Corp. is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $130,500 in debt. Plan II would result in 10,400 shares of stock and $243,600 in debt.
Desert Rose, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 6,500 shares outstanding,
Once Bitten Corp. uses no debt. The weighted average cost of capital is 9.5 percent. If the current market value of the equity is $20.4 million and there are no taxes, what is EBIT?
Meyer & Co. expects its EBIT to be $83,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent. If the tax rate is 35
Galles Corporation is evaluating an extra dividend versus a share repurchase. In either case, $14,500 would be spent. Current earnings are $1.65 per share, and the stock currently sells for $58 per
The owners' equity accounts for Freya International are shown here:Common stock ($.50 par value)....................$ 40,000Capital surplus.........................................345,000Retained
Simmons Mineral Operations, Inc., (SMO) currently has 490,000 shares of stock outstanding that sell for $73 per share. Assuming no market imperfections or tax effects exist, what will the share price
The balance sheet for Ferguson Corp. is shown here in market value terms. There are 12,000 shares of stock outstanding.Market Value Balance SheetCash........................$
In the previous problem, suppose Ferguson has announced it is going to repurchase $15,600 worth of stock. What effect will this transaction have on the equity of the firm? How many shares will be
The market value balance sheet for Bobaflex Manufacturing is shown here. The company has declared a 25 percent stock dividend. The stock goes ex dividend tomorrow (the chronology for a stock
For initial public offerings of common stock, 2013 was an average year, with about $38.75 billion raised by the process. Relatively few of the 157 firms involved paid cash dividends. Why do you think
Ginger, Inc., has declared a $4.80 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the
The following is the sales budget for Harp, Inc., for the first quarter of 2015:January February MarchSales budget...........$216,000.........$241,000....$257,000Credit sales are collected as
Here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2015:The company predicts that 5 percent of its credit sales will never be collected, 35 percent
Below are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash and the amount:
Wildcat, Inc., has estimated sales (in millions) for the next four quarters as follows:Sales for the first quarter of the year after this one are projected at $170 million. Accounts receivable at
Mellott Corp. has an equity value of $12,875. Long-term debt is $8,100. Net working capital, other than cash, is $2,750. Fixed assets are $16,590. How much cash does the company have? If current
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