answer all please

oblcor Union Brick Inc. has a total market value of $200 million, consisting of 2 million shares ommon stock selling for $50 per share and S100 million of 10 % perpetual bonds currently selling at par. UBI pays out all earnings as dividends, and its marginal tax rate is 40%. The fim's carnings before interest and taxes (EBIT) are $30 million. Management is considering increasing UBI's debt to S140 million by calling in all the old bonds and issuing new debt with a 12 % coupon which sells at par. The additional funds will be used to repurchase stock at the new equilibrium price. If UBI's financial leverage is increased as described, the required rate of return on common equity will increase to 15 % What is UBI's current required rate of return on equity? a. b. What would be the value of the firm if the capital structure change were made? c. Regardless of your answer to the previous question, assume the value of the firm would be $204 million if the capital structure change were made. What would be the new stock price? 13 Old Air Inc. has been operating for several years. Its market-deternmined beta is 2.0, its market value capital structure is 80% debt, and its federal-plus-sttate tax rate is 50% The risk-free rate is 10.0% and the required rate of return on the market is 15.0% What is Old Air's asset (unlevered) e. 200 beta? d. 1.67 c. 1.33 b. 1.00 a. 067 14. In the previous question, what is Old Air's financial risk premium? (Assume it's unlevered beta is 1.0) e. 10.00% d. 7.50% b. 1.50% c. 3.33% a. 0.00% 15. Which of the following would not have an influence on the optimal dividend policy? a. The possibility of accelerating or delaying investment projects. b. A strong shareholders' preference for current income versus capital gains. c. Bond indenture constraints. d. The costs associated with selling new common stock e. All of the statements above can have an effect on dividend policy 16. Which of the following statements is correct? a. One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account. b. Stock repurchases can be used by a firm that wants to increase its debt ratio. c. Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities d. One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding. e. One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company. 17. Which of the following statements is correct? a. If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase. b. The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model. c. Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk. d. A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends, Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs. e. The tax code encourages companies to pay dividends rather than retain earnings. 18. McCann Publishing has a target capital structure of 35 % debt and 65 % equity . This year's capital budget is $850,000 and it wants to pay a dividend of $400,000. If the company follows a residual dividend policy, how much net income must it earn to meet its capital budgeting requirements and pay the dividend, all while keeping its capital structure in balance? a. $904,875 b. S952,500 c. $1,000,125 d. $1,050,131 19. Sanchez Company has planned capital expenditures that total $2,000,000. The company wants to maintain a target capital structure that is 35 % debt and 65% equity. The company foreasts that its net income this year will be $1,800,000. If the company follows a residual dividend policy, what will be its total dividend payment? e. $1,102,638 a. $100,000 b. $200,000 c. $300,000 d. $400,000 e. $500,000 8. A company forecasts the free cash flows (in millions) shown below. The weighted average cost ol capital is 13 % , and the FCFS are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions? 3 $40 2 $10 1 Year: -$15 Free cash flow: c. S386 d. $367 c. S348 b. S331 a. $315 9. A venture capital investment group received a proposal from Wireless Solutions to produce a new smart phone. The variable cost per unit is estimated at $250, the sales price would be set at twice the VC/unit, fixed costs are estimated at $750,000, and the investors will put up the funds if the project is likely to have an operating income of S500,000 or more. What sales volume would be required in order to meet this profit goal? d. 5,250 e. 5,513 b. 4,750 c. 5,000 a. 4,513 10. As a general rule, the capital structure that a. maximizes expected EPS also maximizes the price per share of common stock. b. minimizes the interest rate on debt also maximizes the expected EPS. c. minimizes the required rate on equity also maximizes the stock price. d. maximizes the price per share of common stock also minimizes the weighted average cost of capital at any given volume of financing. e. None of the above is a true statement. 11. The trade-off theory provides several insights to financial managers concerning optimal capital structure. Which of the following insights is false? a. Other things equal, firms with large amounts of marketable fixed assets should use more debt financing than firms whose value stems mostly from intangible assets. b. Other things equal, firms with high corporate tax rates should use less debt financing than firms with low tax rates. c. Other things equal, firms with high business risk should use less debt financing than firms with low business risk. 12. You are the financial manager of a firm with a market value debt ratio (debt-to-value) of 0.5 and a cost of equity of 18.08%. The risk-free rate is 8.0% and the required rate of return on the market is 15.0%. Assume the tax rate is 40%. What is the beta of an unlevered firm in the same risk class as your firm? a. 0.7 b. 0.8 c. 0.9 d. 1.0 e. 1.1 oblcor Union Brick Inc. has a total market value of $200 million, consisting of 2 million shares ommon stock selling for $50 per share and S100 million of 10 % perpetual bonds currently selling at par. UBI pays out all earnings as dividends, and its marginal tax rate is 40%. The fim's carnings before interest and taxes (EBIT) are $30 million. Management is considering increasing UBI's debt to S140 million by calling in all the old bonds and issuing new debt with a 12 % coupon which sells at par. The additional funds will be used to repurchase stock at the new equilibrium price. If UBI's financial leverage is increased as described, the required rate of return on common equity will increase to 15 % What is UBI's current required rate of return on equity? a. b. What would be the value of the firm if the capital structure change were made? c. Regardless of your answer to the previous question, assume the value of the firm would be $204 million if the capital structure change were made. What would be the new stock price? 13 Old Air Inc. has been operating for several years. Its market-deternmined beta is 2.0, its market value capital structure is 80% debt, and its federal-plus-sttate tax rate is 50% The risk-free rate is 10.0% and the required rate of return on the market is 15.0% What is Old Air's asset (unlevered) e. 200 beta? d. 1.67 c. 1.33 b. 1.00 a. 067 14. In the previous question, what is Old Air's financial risk premium? (Assume it's unlevered beta is 1.0) e. 10.00% d. 7.50% b. 1.50% c. 3.33% a. 0.00% 15. Which of the following would not have an influence on the optimal dividend policy? a. The possibility of accelerating or delaying investment projects. b. A strong shareholders' preference for current income versus capital gains. c. Bond indenture constraints. d. The costs associated with selling new common stock e. All of the statements above can have an effect on dividend policy 16. Which of the following statements is correct? a. One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account. b. Stock repurchases can be used by a firm that wants to increase its debt ratio. c. Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities d. One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding. e. One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company. 17. Which of the following statements is correct? a. If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase. b. The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model. c. Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk. d. A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends, Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs. e. The tax code encourages companies to pay dividends rather than retain earnings. 18. McCann Publishing has a target capital structure of 35 % debt and 65 % equity . This year's capital budget is $850,000 and it wants to pay a dividend of $400,000. If the company follows a residual dividend policy, how much net income must it earn to meet its capital budgeting requirements and pay the dividend, all while keeping its capital structure in balance? a. $904,875 b. S952,500 c. $1,000,125 d. $1,050,131 19. Sanchez Company has planned capital expenditures that total $2,000,000. The company wants to maintain a target capital structure that is 35 % debt and 65% equity. The company foreasts that its net income this year will be $1,800,000. If the company follows a residual dividend policy, what will be its total dividend payment? e. $1,102,638 a. $100,000 b. $200,000 c. $300,000 d. $400,000 e. $500,000 8. A company forecasts the free cash flows (in millions) shown below. The weighted average cost ol capital is 13 % , and the FCFS are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions? 3 $40 2 $10 1 Year: -$15 Free cash flow: c. S386 d. $367 c. S348 b. S331 a. $315 9. A venture capital investment group received a proposal from Wireless Solutions to produce a new smart phone. The variable cost per unit is estimated at $250, the sales price would be set at twice the VC/unit, fixed costs are estimated at $750,000, and the investors will put up the funds if the project is likely to have an operating income of S500,000 or more. What sales volume would be required in order to meet this profit goal? d. 5,250 e. 5,513 b. 4,750 c. 5,000 a. 4,513 10. As a general rule, the capital structure that a. maximizes expected EPS also maximizes the price per share of common stock. b. minimizes the interest rate on debt also maximizes the expected EPS. c. minimizes the required rate on equity also maximizes the stock price. d. maximizes the price per share of common stock also minimizes the weighted average cost of capital at any given volume of financing. e. None of the above is a true statement. 11. The trade-off theory provides several insights to financial managers concerning optimal capital structure. Which of the following insights is false? a. Other things equal, firms with large amounts of marketable fixed assets should use more debt financing than firms whose value stems mostly from intangible assets. b. Other things equal, firms with high corporate tax rates should use less debt financing than firms with low tax rates. c. Other things equal, firms with high business risk should use less debt financing than firms with low business risk. 12. You are the financial manager of a firm with a market value debt ratio (debt-to-value) of 0.5 and a cost of equity of 18.08%. The risk-free rate is 8.0% and the required rate of return on the market is 15.0%. Assume the tax rate is 40%. What is the beta of an unlevered firm in the same risk class as your firm? a. 0.7 b. 0.8 c. 0.9 d. 1.0 e