1.

Your Company is considering a new project that will require $17,000 of new equipment at the start of the project. The equipment will have a depreciable life of 7 years and will be depreciated to a book value of $200 using straight-line depreciation. The cost of capital is 10%, and the firm's tax rate is 30%. Estimate the present value of the tax benefits from depreciation.

$3,505

$720

$1,680

$2,400

2.

Your firm needs a machine which costs $260,000, and requires $47,000 in maintenance for each year of its 10 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 10-year class life category. Assume a tax rate of 40% and a discount rate of 14%. What is the depreciation tax shield for this project in year 10?

$14,383.20

$9,588.80

$3,356.08

$23,972

3.

Your firm needs a machine which costs $260,000, and requires $41,000 in maintenance for each year of its 5 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 30% and a discount rate of 15%. What is the depreciation tax shield for this project in year 5?

rev: 06_17_2014_QC_49608

$49,920

$7,488.00

$14,976.00

$34,944

4.

Scribble, Inc. has sales of $92,000 and cost of goods sold of $76,000. The firm had a beginning inventory of $22,000 and an ending inventory of $24,000. What is the length of the days' sales in inventory? (Round your answer to 2 decimal places.)

95.22 days

115.26 days

105.66 days

87.28 days

5.

Buying Stock with Commission At your discount brokerage firm, it costs $10.55 per stock trade. How much money do you need to buy 300 shares of Ralph Lauren (RL), which trades at $85.25?

$25,564.00

$28,740.00

$25,585.55

$25,564.45

6.

Expected Return If a company's current stock price is $26.90 and it is likely to pay a $2.65 dividend next year. Since analysts estimate the company will have a 15% growth rate, what is its expected return?

3.05%

15.00%

9.85%

24.85%

7. IVY has preferred stock selling for 97.1 percent of par that pays a 7.9 percent annual coupon. What would be IVY's component cost of preferred stock?

7.90%

7.67%

8.14%

22.91%

8.

Buying Stock with Commission At your discount brokerage firm, it costs $11.50 per stock trade. How much money do you need to buy 100 shares of International Business Machines (IBM), which trades at $96.32?

$8,482.00

$9,643.50

$10,782.00

$9,620.50

9.

Rose Resources faces a smooth annual demand for cash of $10.0 million; incurs transaction costs of $325 every time they sell marketable securities, and can earn 3.9 percent on their marketable securities. What will be their optimal cash replenishment level? (Round your answer to 2 decimal places.)

$28,867.51

$408,248.29

$288,675.13

$40,824.83

10. TJ Co stock has a beta of 1.63, the current risk-free rate is 5.93 percent, and the expected return on the market is 14.18 percent. What is TJ Co's cost of equity?

29.04%

32.78%

19.38%

21.74%