Billingsley Inc. has the following data: rRF = 6%; RPm = 9%; and b = 1.75. What is the firms cost of equity from retained earnings using the CAPM?

a.17.25%

b.19.00%

c.21.75%

d.24.50%

e.26.25%

Assume that you are a consultant to Broske, Inc., and you have been provided with the following data: D1 = $0.67; P0 = $23.50; and g = 6.00% (g is constant). What is the cost of equity from retained earnings using the discounted cash flow approach?

a.10.96%

b.9.91%

c.10.44%

d.11.51%

e.8.85%

You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred stock, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred stock is 7.50%, and the cost of retained earnings is 13.55%. The firm will not issue any new stock. What is its WACC?

a.8.98%

b.10.12%

c.9.62%

d.9.54%

e.9.83%

[5pts] Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D₁= $1.30; P₀= $29.25; g= 4.25% (constant); and F= 5%. What is the cost of equity raised by selling new common stock?

a.8.92%

b.9.06%

c.9.44%

d.9.80%

e.10.23%

AEIOU Co. has a target capital structure of 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 8.0%, the yield on preferred is 7.50%, the cost of retained earnings is 14.75%, and the firms tax rate is 35%. The firm will not be issuing any new stock. What is AEIOU Co.s WACC?

a.8.48%

b.8.82%

9.54%

c.10.15&

d.10.68%

A Butcher Timber Company hired your consulting firm to help them estimate the cost of equity. The yield on the firms bonds is 8.75%, and your firms economists believe that the cost of equity can be estimated using a risk premium of 4.35% over a firms cost of debt (r_s=r_d + RP). What is an estimate of the firms cost of equity from retained earnings?

a.12.60%

b.13.10%

c.13.63%

d.14.17%

e.14.74%

Assume that you are a consultant to Holly Inc., and you have been provided with the following data: D1 = $0.57; P0 = $22.50; and g = 6.50% (constant). What is the cost of equity from retained earnings based on the DCF approach? rs = D1/P0 + g

a.9.03%

b.9.53%

c.10.30%

d.10.85%

e.11.00%

Weaver Chocolate Company expects to pay a dividend D1=$2.28 next year. The dividend is expected to grow at a constant rate of 2.5% and its stock currently sells at $47.80 per share. New stock can be sold to the public at the current price, but the firm would incur a flotation cost of 3.75%. What would be Weavers cost of equity from new common stock?

a.5.25%

b.6.25%

c.7.27%

d.7.46%

e.8.15%

Story Communications has a target capital structure of 30% debt, 5% preferred and 65% common equity. The component costs are: rd= 4.5%; rp = 12%; and rs = 13.45%. The firm has a state + federal tax rate of 37%. What is the firms WACC?

a.9.48%

b.9.98%

c.10.19%

d.10.69%

e.11.45%

Mansi Inc. is considering a project that has the following cash flow data. What is the projects payback?

Year 0: -$750 Year 1: $300 Year 2: $325 Year 3: $350

a.1.91 years

b.2.12 years

c.2.36 years

d.3.0 years

e.3.67 years

Warnock Inc is planning a project that has the following cash flow data: CF0= ($950); CF1 = $500, CF2= $400; CF3= $300; and CF4= $450. What is the plans payback?

a.1.75 years

b.2.17 years

c.2.67 year

d.3.00 years

e.3.33 years

A&A Windows is considering a project that has the following cash flow and WACC data. What is the projects NPV? WACC: 9.00%; CF0 = ($1000); CF1 = $500; CF2 = $500; CF3 = $500

a.$265.65

b.$278.93

c.$292.88

d.$307.52

e.$322.90

Sumsel Inc. is considering a project that has the following cash flow data: CF0= ($500); CF1= $150; CF2= $200; and CF3= $300. If the WACC for the company is 12.25%, what is the NPV of the project?

a.($4.43)

b.($2.27)

c.$2.87

d.$4.47

e.$40.42

Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the projects NPV? Note that a projects NPV can be negative, in which case it will be rejected. WACC = 9.50%

Year 0: -$1,050 Year 1: $450 Year 2: $460 Year 3: $470

a.$92.37

b.$96.99

c.$102.58

d.$106.93

e.$112.28

Solar Systems Corp. is considering a project that has the following cash flow data: CF0= ($1000); CF1= $425; CF2= $425; CF3= $425. What is the project's IRR?

a.13.21%

b.14.44%

c.15.89%

d.16.22%

e.17.48%

Datta Computer Systems is considering a project that has the following cash flow data. What is the projects IRR?

Year 0: -$1,100 Year 1: $425 Year 2: $470 Year 3: $490

a.9.70%

b.10.78%

c.11.98%

d.12.15%

e.13.08%

Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the projects IRR?

Year 0: -$850 Year 1: $300 Year 2: $290 Year 3: $280 Year 4: $270

13.13%

a.14.44%

b.15.89%

c.17.48%

d.19.22%

Based on your answer to the previous problem, if the WACC for the company is 11% will the project be accepted?

a.Yes, the project will be accepted IRR > WACC

b.Yes, the project will be accepted NPV > 0

c.No, the project will be rejected IRR < WACC

d.No, the project will be rejected NPV < 0

e.Both a and b

Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firms WACC. The Feds actions did not affect the forecasted cash flows. By how much did the change in the WACC affect the projects forecasted NPV? Note that a projects NPV can be negative and in which case would be rejected.

Old WACC: 8.00% New WACC: 11.25%

Year 0: -$1000 Year 1: $410 Year 2: $410 Year 3: $410

a.-$59.03

b.-$56.08

c.-$53.27

d.-$50.61

e.-$48.08

Sorenson Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 per share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% equity. What is the companys WACC if all the equity used is from retained earnings?

a.7.07%

b.7.36%

c.7.67%

d.7.98%

e.8.29%