1)

Dan Goldiehas $3,000 invested in AT&T with an expected return of 11.6 percent; $10,000 in IBM with an expected return of 12.8 percent; and $6,000 in GM with an expected return of 12.2 percent. What is Dan's expected return on his portfolio? (Points : 3)

12.42% 12.20% 11.81% Cannot be determined

2)

Sandra Gates Industries current common stock dividend (year 0) is $2.50 per share and is expected to continue growing at a rate of 5% per year for the foreseeable future. Currently the risk-free rate is 7.5% and the estimated market risk premium (i.e., k_m- r_f) is 8.3%. Value Line has estimated Sandra Gates Industries' beta to be 1.10. Determine the expected price for Sandra Gates Industries' common stock. (Points : 4)

$21.50 $15.03 $15.78 $22.57

3)

Adams Corporation can raise up to $1700 million for investment from a mixture of debt, preferred stock and retained equity. Above $1700 million, the firm must issue new common stock. Assuming that debt costs and preferred stock costs remain unchanged, the marginal cost of capital for amounts up to $1700 million will be ____ the marginal cost of capital for amounts over $1700 million. (Points : 3)

less than equal to greater than cannot be determined from the information given

4)

Aunt Bee is thinking about purchasing a new flam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Should Aunt Bee purchase this digger if its cost of capital is 12 percent? (Points : 3)

Yes, NPV = $3,176 Yes, NPV = $5,081 Yes, NPV = $16,605 Yes, NPV= $19,084

5)

Bumble Bee is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Should Bumble Bee purchase this digger if its cost of capital is 12 percent based on the IRR for the project? What is the IRR for the project? (Points : 3)

Yes, 31.98% No, 12.57% Yes, 10.90% No, 8.08%

6)

Honey Bee is thinking about purchasing a new clam maker for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Assuming that the cost of capital is 12 percent what is the MIRR for the project? (Points : 3)

35% 30% 21% 28% 13%

7)

Sandra Gates Industries current common stock dividend (year 0) is $2.50 per share and is expected to continue growing at a rate of 5% per year for the foreseeable future. Currently the risk-free rate is 7.5% and the estimated market risk premium (i.e., k_m- r_f) is 8.3%. Value Line has estimated Sandra Gates Industries' beta to be 1.10. Determine the expected price for Sandra Gates Industries' common stock. (Points : 4)

$21.50 $15.03 $15.78 $22.57

8)

Kevin John Wright Express(KJWE) has a capital structure of 30% debt and 70% equity. KJWE is considering a project that requires an investment of $2.6 million. To finance this project, KJWE plans to issue 10-year bonds with a coupon interest rate of 12%. Each of these bonds has a $1,000 face value and will be sold to net KJWE $980. If the current risk-free rate is 7% and the expected market return is 14.5%, what is the weighted cost of capital for KJWE? Assumethe companyhas a beta of 1.20 and a marginal tax rate of 40%. (Points : 3)

14.9% 12.4% 13.4% 16.0%