MCQ'S:

22) Clinch River Power is considering refunding a $150 million 12% coupon bond with a 10% coupon bond, 20-year bond. The current bond also matures in 20 years and is now callable at 110% of par. The unamortized flotation cost on the old issue is $540,000, and the flotation cost of the new issue is 0.925%. Clinch River estimates that there would be a 4-week period where both bonds would be outstanding. The company has a weighted cost of capital of 11% and a 40% marginal tax rate. Clinch River has decided to sell the refunding issue. What is their reasoning?

a.NPV is approximately $10.808 million

b.NPV is approximately $9.930 million

c.NPV is approximately $9.838 million .

d.NPV is approximately $9.655 million

23) If you invest $10,000 in a 4-year certificate of deposit (CD) paying 10 percent interest compounded annually, determine how much the CD will be worth at the end of 4 years.

a.$13,600

b.$15,958

c.$45,730

d.$14,640 .

24) Airstat is replacing an old stamping line that cost $80,000 five years ago, with a new, more efficient machine that will cost $225,000. Shipping and installation will cost an additional $20,000. The old machine has a book value of $15,000 but will be sold as scrap for $5,000. The new machine will be depreciated with a 7-year life under MACRS guidelines. With the increased production, inventories will increase $4,000, accounts receivable will increase $16,000, and accounts payable will increase $14,000. If Airstat has a marginal tax rate of 40 percent, what is the net investment?

a.$242,000 .

b.$274,000

c.$260,000

d.$274,000

25) Excelsior Company's capital structure is as follows:

Common stock ($2 par value, 2,000,000 shares)

$ 4,000,000

Contributed capital in excess of par

16,000,000

Retained earnings

23,000,000

Total common stockholders' equity

$43,000,000

The current market price of the firm's common stock is $30. Assuming the firm declares a 10% stock dividend, determine the balance in the contributed capital in excess of par and retained earnings accounts.

a.$22,000,000; $17,000,000

b.$21,600,000; $23,000,000 .

c.$17,000,000; $21,600,000

d.$21,600,000; $17,000,000

26) Anderson Clayton will purchase a new pellet mill that will replace an older, less efficient mill. The new mill costs $360,000 and shipping costs are $10,000. Improving the steam lines to the new mill will cost an additional $22,000. The old mill has a book value of $25,000 and can be sold for $12,000. The installation of the new mill will cause inventories to increase by $8,000, accounts receivable will go up $20,000, and accounts payable will increase $10,000. If Anderson Clayton has a marginal tax rate of 40%, what is the NINV for the new mill?

a.$412,800

b.$392,800 .

c.$374,800

d.$398,000

27) According to Value Line, Bestway has a beta of 1.15. If 3-month Treasury bills currently yield 7.9% and the market risk premium is estimated to be 8.3%, what is Bestway's cost of equity capital?

a.16.2%

b.8.36%

c.17.45% .

d.9.55%

28) Determine the pure project beta of a project that has 30% debt and 70% equity. The beta for the company is 1.4, and it has a tax rate of 40%.

a.1.05

b.1.56

c.1.83

d.1.11

29) firm is determining its cost of common stock equity. It last paid a dividend of $0.52, the dividends are growing at 5%, flotation costs are $2 per share, and the firm will net $72 per share upon the sale of the stock. What is the firms cost of common equity?

a.5.76% .

b.8.22%

c.6.11%

d.3.49%

30) annuity due is one in which ___.

a.payments or receipts occur forever

b.payments or receipts occur at the end of each period

c.payments or receipts occur at the beginning of each period .

d.cash flows occur continuously