Part II Information

# of Common Shares Outstanding ...................................... 50,000

P/E Ratio ............................................................................. 25.35

Preferred Dividend (existing shares) .................................. $2.00

Market Yield for Preferred Stock ...................................... 7.00%

Costs: Variable = $3,000,000

Fixed = $1,100,000

Expected Common Dividend ............................................. $ 3.00

Common stock value growth rate ...................................... 7.50%

Bond Market Yield ............................................................ 6.00%

Preferred Floatation cost .................................................... $ 1.50

Preferred stock new issue price ......................................... $ 50.00

Capital Budgeting Opportunity Information

Initial Investment amount $600,000

Expected Cash Flows

Year 1 $100,000

Year 2 200,000

Year 3 200,000

Year 4 200,000

Information for Leverage Ratios

Quantity of Units 10,000

Price per unit $ 480

1. What is Arkansas Corporation's DCL?

2. 		$1,340,000
   		2.86x
   		None of the above
   		4.04%
   		2.57x

2.86 points

QUESTION 2

1. What is Arkansas Corporation's DFL?

   		$1,340,000
   		111%
   		1.11%
   		$800,000
   		1.11x

2.86 points

QUESTION 3

1. What is Arkansas Corporation's DOL?

   		2.57x
   		257%
   		3.64%
   		290%
   		29x

2.86 points

QUESTION 4

1. What is Arkansas Corporation's WACC?

   		2.296%
   		5.82%
   		.536%
   		20.47%
   		2.99%

2.86 points

QUESTION 5

1. What is Arkansas Corporation's after-tax cost of common stock?

   		6.84%
   		14%
   		8.75%
   		10.16%
   		$3.00

2.86 points

QUESTION 6

1. What is Arkansas Corporation's after-tax cost of debt?

   		4.50%
   		9.26%
   		8.00%
   		Unable to determine
   		6.00%

2.86 points

QUESTION 7

1. What is Arkansas Corporation's after-tax cost of preferred stock?

   		4.12%
   		9.26%
   		7.22%
   		$48.50
   		8.10%

2.86 points

QUESTION 8

1. What is Arkansas Corporation's tax rate?

   		33.33%
   		9.26%
   		25.00%
   		21.00%
   		3.28%

2.86 points

QUESTION 9

1. What is the Break Even in units for Arkansas Corporation?

   		$3,929
   		10,000
   		None of the above
   		1.82x
   		3,929 units

2.86 points

QUESTION 10

1. What is the NPV of the Capital Budgeting Opportunity for Arkansas Corporation using the WACC?

   		$63,529.13
   		$888.13
   		20.47%
   		1,387.05
   		12,257.19

2.86 points

QUESTION 11

1. What is the Payback Period of the Capital Budgeting Opportunity for Arkansas Corporation?

   		5.17 Years
   		4.00 Years
   		3.50 Years
   		None of the above
   		3.00 Years

2.86 points

QUESTION 12

1. What is the price of a bond issued by Arkansas Corporation with a $1,000 PAR value, 15 years to maturity, with a coupon rate of 8.00%, interest paid quarterly?

   		$1323.23
   		$1,194.24
   		$1,196.91
   		$1,000.00
   		$853.29

2.86 points

QUESTION 13

1. What is the price of one share of common stock for Arkansas Corporation?

   		$480.00
   		$25.35
   		$9.45
   		$5.00
   		$233.47

2.86 points

QUESTION 14

1. What is the price of one share of preferred stock (existing shares)?

   		$28.57
   		$25.00
   		None of the above
   		$50.00
   		$48.50