I need solutions to these problems. The answers alone are not very helpful.

1) Assume that Bunch Inc. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1. A) $1,233.79 B) $1,201.32 C) $1,134.88 D) $1,032.56 Answer: A

2) What is the value of a bond that matures in 17 years, makes an annual coupon payment of $50, and has a par value of $1,000? Assume a required rate of return of 5.90%. A) $823.48 B) $856.98 C) $895.23 D) $905.02 Answer: D

3) Alice Kitchen's, Inc. bonds have a 10% coupon rate with semiannual coupon payments. They have 12 and 1/2 years to maturity and a par value of $1,000. Compute the value of Alice's bonds if investors' required rate of return is 8%. A) $1,156.22 B) $1,239.33 C) $1,137.10 D) $1,084.44 Answer: A

4) In the present value bond valuation model, risk is generally incorporated into the A) maturity amount. B) timing of cash flows (assuming more risky cash flows are received early). C) discount rate or required return. D) cash flows (making some smaller if they are more risky). Answer: C

5) Two bonds are identical except for their maturity. The bonds have a coupon rate that is greater than their yield to maturity. Which of the following is true when comparing the two bonds? A) The longer maturity bond has a greater premium (is priced farther above par). B) The longer maturity bond has a smaller premium (is priced above par but closer to par). C) The longer maturity bond has a greater discount (is priced farther below par). D) The longer maturity bond has a smaller discount (is priced below par but closer to par). Answer: A

6) PBJ Corporation issued bonds on January 1, 2006. The bonds had a coupon rate of 5.5%, with interest paid semiannually. The face value of the bonds is $1,000 and the bonds mature on January 1, 2021. What is the yield to maturity for an PBJ Corporation bond on January 1, 2012 if the market price of the bond on that date is $950? A) 5.50% B) 6.23% C) 8.43% D) 10.50% Answer: B

7) You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 15 percent for the next 3 years, resulting in dividends of D1=$2.30, D2=$2.645, and D3=$3.04. The long-run normal growth rate after year 3 is expected to be 10 percent (that is, a constant growth rate after year 3 of 10% per year forever). If you require a 14 percent rate of return, how much should you be willing to pay for this stock (choose the closest answer)? A) $89.75 B) $83.65 C) $56.46 D) $62.57 Answer: D

8) Shackleford Corporation net income this year is $800,000. The company generally retains 35% of net income for reinvestment. The company's common equity currently has a book value of $5,000,000. They just paid a dividend of $1.37, and the required rate of return on this stock is 12%. Compute the value of this stock if dividends are expected to continue growing indefinitely at the company's internal growth rate. A) $22.61 B) $11.42 C) $15.63 D) $4.35 Answer: A

9) Kinard's Kennels Inc. ROE is 20%. Their dividend payout ratio is 70%. The last dividend, just paid, was $2.00. If dividends are expected to grow by the company's internal growth rate indefinitely, what is the current value of Kinard's common stock if its required return is 18%? A) $17.67 B) $16.89 C) $14.92 D) $11.52 Answer: A

10) Glacier Inc. preferred stock has a 5% stated dividend percentage, and a $100 par value. What is the value of the stock if your required rate of return is 6% per year? A) $83.33 B) $94.05 C) $100.00 D) $30.00 Answer: A

11) Beaver Corp preferred stock has a market price of $14.50. If it has a yearly dividend of $3.50, what is your expected rate of return if you purchase the stock at its market price? A) 41.43% B) 19.45% C) 22.36% D) 24.14% Answer: D

12) Bevel Building Products, Inc., whose common stock is currently selling for $12 per share, is expected to pay a $1.80 dividend, and sell for $14.40 one year from now. What are the dividend yield, growth rate, and total rate of return, respectively? A) 15%20% 35% B) 10%5% 15% C) 15%12% 27% D) 20%15% 35% Answer: A

13) Distant Thunder, Inc. paid a dividend of $5.00 per share on its common stock yesterday. Dividends are expected to grow at a constant rate of 10% for the next two years, at which point the dividends will begin to grow at a constant rate indefinitely. If the stock is selling for $50 today and the required return is 15%, what it the expected annual dividend growth rate after year two? A) 3.365% B) 3.878% C) 4.556% D) 5.000% Answer: A

14) Crandle's common stock is currently selling for $79.00. It just paid a dividend of $4.60 and dividends are expected to grow at a rate of 5% indefinitely. What is the required rate of return on Crandle's stock? A) 11.11% B) 11.76% C) 12.2% D) 14.21% Answer: A

15) Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adventure Outfitter if the corporation raises money by selling common stock? A) 27.00% B) 18.89% C) 18.33% D) 17.00% Answer: B

16) A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of 3.5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.25 per share. The company's marginal tax rate is 35%. Therefore, the cost of preferred stock is A) 18.87%. B) 17.72%. C) 14.26%. D) 12.94%. Answer: B

17) Sentry Manufacturing paid a dividend yesterday of $5 per share (D0 = $5). The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing's stock today is $29 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of new common stock is A) 28.38%. B) 24.12%. C) 26.62%. D) 31.40%. Answer: A

18) The risk free rate of return is 2.5% and the market risk premium is 8%. Rogue Transport has a beta of 2.2 and a standard deviation of returns of 28%. Rogue Transport's marginal tax rate is 35%. Analysts expect Rogue Transport's dividends to grow by 6% per year for the foreseeable future. Using the capital asset pricing model, what is Rogue Transport's cost of retained earnings? A) 16.4% B) 17.7% C) 19.6% D) 20.1% Answer: D

19) A firm's cost of capital is influenced most directly by which of the following: A) the current ratio. B) par value of common stock. C) capital structure. D) net income. Answer: C

20) The cost of new preferred stock is equal to A) the preferred stock dividend divided by the market price. B) the preferred stock dividend divided by its par value. C) (1 - tax rate) times the preferred stock dividend divided by net price. D) preferred stock dividend divided by the net selling price of preferred stock Answer: D

21) The cost of external equity capital is greater than the cost of retained earnings because of A) flotation costs on new equity. B) increasing marginal tax rates. C) higher dividends. D) greater risk for shareholders. Answer: A

22) Crandal Dockworks is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Flotation expense on the new bonds will be $50 per bond. Crandal's marginal tax rate is 35%. What is the yield to maturity on the newly-issued bonds? A) 6.95% B) 7.99% C) 8.17% D) 9.82% Answer: C

23) Tempo Corp. will issue preferred stock to finance a new artillery line. The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share. Investment bankers have advised Tempo that flotation costs on the new preferred issue would be 5% of the selling price. Tempo's marginal tax rate is 30%. What is the relevant cost of new preferred stock? A) 7.00% B) 7.37% C) 10.00% D) 10.53% E) 15.00% Answer: D

24) Keystone Corporation will issue new common stock to finance an expansion. The existing common stock just paid a $1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for $45, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new common stock be for Keystone Corp.? A) 11.33% B) 11.51% C) 11.60% D) 11.79% E) 12.53% Answer: D

25) Baxter Inc. has a target capital structure of 30% debt, 15% preferred stock, and 55% common equity. The company's after-tax cost of debt is 7%, its cost of preferred stock is 11%, its cost of retained earnings is 15%, and its cost of new common stock is 16%. The company stock has a beta of 1.5 and the company's marginal tax rate is 35%. What is the company's weighted average cost of capital if retained earnings are used to fund the common equity portion? A) 11.20% B) 12.00% C) 13.80% D) 14.45% Answer: B

26) GHJ Inc. is investing in a major capital budgeting project that will require the expenditure of $16 million. The money will be raised by issuing $2 million of bonds, $4 million of preferred stock, and $10 million of new common stock. The company estimates is after-tax cost of debt to be 7%, its cost of preferred stock to be 9%, the cost of retained earnings to be 14%, and the cost of new common stock to be 17%. What is the weighted average cost of capital for this project? A) 12.20% B) 13.12% C) 13.75% D) 14.23% Answer: C

27) Coyote Inc. operates three divisions. One division involves significant research and development, and thus has a high-risk cost of capital of 15%. The second division operates in business segments related to Coyote's core business, and this division has a cost of capital of 10% based upon its risk. Coyote's core business is the least risky segment, with a cost of capital of 8%. The firm's overall weighted average cost of capital of 11% has been used to evaluate capital budgeting projects for all three divisions. This approach will A) favor projects in the core business division because that division is the least risky. B) favor projects in the related businesses division because the cost of capital for this division is the closest to the firm's weighted average cost of capital. C) favor projects in the research and development division because the higher risk projects look more favorable if a lower cost of capital is used to evaluate them. D) not favor any division over the other because they all use the same company-wide weighted average cost of capital. Answer: C

28) A corporate bond has a face value of $1,000 and a coupon rate of 9%. The bond matures in 14 years and has a current market price of $946. If the corporation sells more bonds it will incur flotation costs of $26 per bond. If the corporate tax rate is 35%, what is the after-tax cost of debt capital? A) 5.57% B) 6.56% C) 8.18% D) 7.31% Answer: B

29) Which of the following statements is MOST correct? A) If a project's internal rate of return (IRR) exceeds the required return, then the project's net present value (NPV) must be negative. B) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. C) The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR. D) A project with a NPV = 0 is not acceptable. Answer: C

30) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the payback period of this project? A) 4.00 years B) 3.09 years C) 2.91 years D) 2.50 years Answer: D

31) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the net present value of this project? A) $104,089 B) $100,328 C) $96,320 D) $87,417 Answer: A

32) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the internal rate of return of this project? A) 10.87% B) 11.57% C) 13.68% D) 15.13% Answer: D

33) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the modified internal rate of return of this project? A) 10.87% B) 11.57% C) 13.68% D) 15.13% Answer: B