Hello again, I'm submitting to you 6 questions that I could use some help on. 4 of these questions I need you to explain the answer to me. The other two are multiple choice. Could use some extra assistance in understanding how you come to the conclusion to their answers. Thanks Cindy
1. Roxie Epoxy's balance sheet shows a total of $50 million longterm debt with a coupon rate of 8.00% and a yield to maturity of 7.00%. This debt currently has a market value of $55 million. The balance sheet also shows that that the company has 20 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $8.25 per share; stockholders' required return, rs, is 10.00%; and the firm's tax rate is 40%. Based on market value weights, and assuming the firm is currently at its target capital structure, what WACC should Roxie use to evaluate capital budgeting projects? 2. Yonan Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the shorter payback, some value may be forgone. How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost. NPV vs. Payback methods. WACC: 10.00% 0 1 2 3 4 CFS $1,000 $500 $800 $0 $0 CFL $2,100 $400 $800 $800 $1,000 3. Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year's sales = S0 $300.0 Last year's accounts payable $50.0 Sales growth rate = g 40% Last year's notes payable (to bank) $15.0 Last year's total assets = A0 $500.0 Last year's accruals $20.0 Last year's profit margin = M 20.0% Initial payout ratio 10.0% New payout ratio 50.0% 4. Dentaltech Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and also maintains its target capital structure, what will its payout ratio be? EBIT $2,000,000 Capital budget $850,000 Interest rate 10% % Debt 40% Debt outstanding $5,000,000 % Equity 60% Shares outstanding $5,000,000 Tax rate 40% 5. Operating leases often have terms that include (select which completes the statement) a. maintenance of the equipment by the lessor. b. full amortization over the life of the lease. c. very high penalties if the lease is cancelled. d. restrictions on how much the leased property can be used. e. much longer lease periods than for most financial leases. 6. In the lease versus buy decision, leasing is often preferable (select which completes the statement) a. because it has no effect on the firm's ability to borrow to make other investments. b. because, generally, no down payment is required, and there are no indirect interest costs. c. because lease obligations do not affect the firm's risk as seen by investors. d. because the lessee owns the property at the end of the lease term. e. because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset
