Question 1 PLEASE PUT INTO EXCEL SHEET THE CORRECT ANSWER IS SHOWN THANK YOU 1 out of 1 points Currently, Warren Industries can sell 15 year, $1000 par value bonds paying annual interest at a 12 coupon rate As a result of the current interest rate, the bonds would sell for $1,010 each Further, floatation costs of $30 per bond would be incurred in this process The firm is in the 40 tax bracket Calculate the before tax cost and after tax cost of the bond Selected Answer B 12 30 , 7 38 Answers A 13 50 , 7 38 B 12 30 , 7 38 C 10 30 , 6 38 D 12 30 , 6 75 Response Feedback Correct Question 2 1 out of 1 points David Abbot is interested in purchasing a bond issued by Sony He has obtained the following information on the security Par value $1,000 Coupon interest rate 6 Cost $930, Years to maturity 10 Tax bracket 20 Calculate the before tax cost and after tax cost of the Sony bond given Davids tax bracket Selected Answer A Before tax cost 7 0 , After tax cost 5 6 Answers A Before tax cost 7 0 , After tax cost 5 6 B Before tax cost 8 0 , After tax cost 6 4 C Before tax cost 6 00 , After tax cost 4 8 D Before tax cost 9 0 , After tax cost 7 2 Response Feedback Correct Question 3 0 out of 1 points Equity Lightning Corp wishes to explore the effect on its cost of capital of the rate at which the company pays taxes The firm wishes to maintain a capital structure of 30 debt, 10 preferred stock, and 60 common stock The cost of financing using retained earnings is 14 , the cost of preferred stock financing is 9 , and the before tax cost of debt financing is 11 Calculate the weighted average cost of capital (WACC) given the following tax rate assumptions (1) tax rate 40 , (2) tax rate 35 , (3) tax rate 25 , describe the effect of tax rate on WACC Selected Answer A (1) 11 28 (2) 11 45 (3) 11 78 As the tax rate decreases, the WACC decreases due to the reduced tax expense Answers A (1) 11 28 (2) 11 45 (3) 11 78 As the tax rate decreases, the WACC decreases due to the reduced tax expense B (1) 12 82 (2) 13 35 (3) 13 88 As the tax rate decreases, the WACC increases due to the reduced tax shield from the tax deductible interest on debt C (1) 11 28 (2) 11 45 (3) 11 78 As the tax rate increases, the WACC increases due to the reduced tax shield from the tax deductible interest on debt D (1) 11 28 (2) 11 45 (3) 11 78 As the tax rate decreases, the WACC increases due to the reduced tax shield from the tax deductible interest on debt Response Feedback Try again These hints may help you (1) WACC (0 30)(11 )(1 0 40) (0 10)(9 ) (0 60)(14 ) (2) WACC (0 30)(11 )(1 0 35) (0 10)(9 ) (0 60)(14 ) (3) WACC (0 30)(11 )(1 0 25) (0 10)(9 ) (0 60)(14 ) As the tax rate , the WACC due to the tax shield from the tax deductible interest on debt Question 4 1 out of 1 points J M Corporations common stock has a beta, b, of 1 2 The risk free rate is 6 , and the market return is 11 Determine J Ms cost of common stock equity using the CAPM Selected Answer B 12 Answers A 11 B 12 C 10 D 13 Response Feedback Correct Question 5 1 out of 1 points Oxy Corporation uses debt, preferred stock, and common stock to raise capital The firms capital structure targets the following proportion debt, 55 preferred stock, 10 and common stock, 35 If the cost of debt is 6 7 , preferred stock costs 9 2 , and common stock costs 10 6 , what is Oxys weighted average cost of capital (WACC) Selected Answer B 8 32 Answers A 8 96 B 8 32 C 7 56 D 10 14 Response Feedback Correct Question 6 0 out of 1 points Assume that you are on the financial staff of Vanderheiden Inc , and you have collected the following data The yield on the companys outstanding bonds is 7 75 its tax rate is 40 the next expected dividend is $0 65 a share the dividend is expected to grow at a constant rate of 6 00 a year the price of the stock is $15 00 per share the flotation cost for selling new shares is F 10 and the target capital structure is 45 debt and 55 common equity What is the firm's WACC, assuming it must issue new stock to finance its capital budget Selected Answer A 11 04 Answers A 11 04 B 9 05 C 8 04 D 7 06 Response Feedback Try again These hints may help you YTM 7 75 Tax rate 40 D 1 $0 65 g 6 00 P 0 $15 00 F 10 0 w d 45 w s 55 r d (1 T) 1 r e D 1 (P 0 (1 F)) g 2 WACC w d (r d )(1 T) w s (r s ) 3 Question 7 1 out of 1 points Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital The balance sheet and some other information are provided below Assets Current assets $ 38,000,000 Net plant, property, and equipment 101,000,000 Total assets $139,000,000 Liabilities and Equity Accounts payable $ 10,000,000 Accruals 9,000,000 Current liabilities $ 19,000,000 Long term debt (40,000 bonds, $1,000 par value) 40,000,000 Total liabilities $ 59,000,000 Common stock (10,000,000 shares) 30,000,000 Retained earnings 50,000,000 Total shareholders' equity 80,000,000 Total liabilities and shareholders' equity $139,000,000 The stock is currently selling for $15 25 per share, and its noncallable $1,000 par value, 20 year, 7 25 bonds with semiannual payments are selling for $875 00 The beta is 1 25, the yield on a 6 month Treasury bill is 3 50 , and the yield on a 20 year Treasury bond is 5 50 The required return on the stock market is 11 50 , but the market has had an average annual return of 14 50 during the past 5 years The firm's tax rate is 40 What is the best estimate of the firm'sWACC Selected Answer A 11 53 Answers A 11 53 B 12 13 C 18 67 D 13 03 Response Feedback Correct Question 8 1 out of 1 points Daves Inc recently hired you as a consultant to estimate the companys WACC You have obtained the following information (1) The firm's noncallable bonds mature in 20 years, have an 8 00 annual coupon, a par value of $1,000, and a market price of $1,050 00 (2) The companys tax rate is 40 (3) The risk free rate is 4 50 , the market risk premium is 5 50 , and the stocks beta is 1 20 (4) The target capital structure consists of 35 debt and the balance is common equity The firm uses CAPM to estimate the cost of common stock, and it does not expect to issue any new shares What is its WACC Selected Answer C 8 79 Answers A 9 75 B 10 79 C 8 79 D 7 75 Response Feedback Correct Question 9 1 out of 1 points Determine the cost for each of the following preferred stocks Case Par value Sale price Flotation cost Annual dividend A $100 $101 $9 00 11 B $40 $38 $3 50 8 C $35 $37 $4 00 $5 00 D $30 $26 5 of par $3 00 E $20 $20 $2 50 9 Selected Answer A Preferred Stock Cost A 11 96 B 9 28 C 15 15 D 12 24 E 10 29 Answers A Preferred Stock Cost A 11 96 B 9 28 C 15 15 D 12 24 E 10 29 B Preferred Stock Cost A 11 96 B 9 28 C 15 15 D 12 24 E 11 25 C Preferred Stock Cost A 11 96 B 9 28 C 17 25 D 12 24 E 10 29 D Preferred Stock Cost A 11 96 B 9 28 C 15 15 D 9 24 E 10 29 Response Feedback Correct Question 10 1 out of 1 points Eakins Inc s common stock currently sells for $45 00 per share, the company expects to earn $2 75 per share during the current year, its expected payout ratio is 70 , and its expected constant growth rate is 6 00 New stock can be sold to the public at the current price, but a flotation cost of 8 would be incurred By how much would the cost of new stock exceed the cost of common from retained earnings Selected Answer B 0 37 Answers A 0 48 B 0 37 C 0 57 D 0 75 Response Feedback Correct Question 11 1 out of 1 points Edna Recording Studios, Inc , reported earnings available to common stock of $4200000 last year From these earnings, the company paid a dividend of $1 26 on each of its 1000000 common shares outstanding The capital structure of the company includes 40 debt, 10 preferred stock, and 50 common stock It is taxed at a rate of 40 If the market price of the common stock is $40 and dividends are expected to grow at a rate of 6 for the foreseeable future, what is the companys cost of retained earnings financing Selected Answer D 9 34 Answers A 5 86 B 9 09 C 10 06 D 9 34 Response Feedback Correct Question 12 1 out of 1 points Edna Recording Studios, Inc , reported earnings available to common stock of $4200000 last year From these earnings, the company paid a dividend of $1 26 on each of its 1000000 common shares outstanding The capital structure of the company includes 40 debt, 10 preferred stock, and 50 common stock It is taxed at a rate of 40 If underpricing and flotation costs on new shares of common stock amount to $7 00 per share, what is the companys cost of new common stock financing (Assume the market price of the common stock is $40 and that dividends are expected to grow at a rate of 6 for the foreseeable future ) Selected Answer D 10 05 Answers A 9 06 B 9 34 C 7 00 D 10 05 Response Feedback Correct Question 13 1 out of 1 points Edna Recording Studios, Inc , reported earnings available to common stock of $4200000 last year From these earnings, the company paid a dividend of $1 26 on each of its 1000000 common shares outstanding The capital structure of the company includes 40 debt, 10 preferred stock, and 50 common stock It is taxed at a rate of 40 The company can issue $2 00 dividend preferred stock for a market price of $25 00 per share Flotation costs would amount to $3 00 per share What is the cost of preferred stock financing Selected Answer 9 09 Answers 9 09 10 06 7 99 9 86 Response Feedback Correct Question 14 1 out of 1 points Edna Recording Studios, Inc , reported earnings available to common stock of $4200000 last year From these earnings, the company paid a dividend of $1 26 on each of its 1000000 common shares outstanding The capital structure of the company includes 40 debt, 10 preferred stock, and 50 common stock It is taxed at a rate of 40 The company can issue $1000 par value, 10 coupon, 5 year bonds that can be sold for $1200 each Flotation costs would amount to $25 00 per bond What is the after tax cost of debt financing Selected Answer D 3 52 Answers A 10 00 B 6 99 C 5 86 D 3 52 Response Feedback Correct Question 15 1 out of 1 points Eggs,Inc reported earnings available to common stock of $4200000 last year From these earnings, the company paid a dividend of $1 26 on each of its 1000000 common shares outstanding The capital structure of the company includes 40 debt, 10 preferred stock, and 50 common stock It is taxed at a rate of 40 The market price of the common stock is $40and dividends are expected to grow at a rate of 6 for the foreseeable future The company plans to issue $2 00 dividend preferred stock for a market price of $25 00 per share Flotation costs would amount to $3 00 per share In addition,the company will also issue $1000 par value, 10 coupon, 5 year bonds that can be sold for $1200 each Flotation costs would amount to $25 00 per bond What is the WACC Selected Answer B 6 99 Answers A 8 09 B 6 99 C 9 67 D 7 86 Response Feedback Correct

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Question 1 PLEASE PUT INTO EXCEL SHEET THE CORRECT ANSWER IS SHOWN. THANK YOU 1 out of 1 points Currently, Warren Industries can sell 15-year,

Question 1 PLEASE PUT INTO EXCEL SHEET THE CORRECT ANSWER IS SHOWN. THANK YOU

1 out of 1 points

Currently, Warren Industries can sell 15-year, $1000 par-value bonds paying annual interest at a 12% coupon rate. As a result of the current interest rate, the bonds would sell for $1,010 each. Further, floatation costs of $30 per bond would be incurred in this process. The firm is in the 40% tax bracket. Calculate the before-tax cost and after-tax cost of the bond.

Selected Answer:	B. 12.30%, 7.38%
Answers:	A. 13.50%, 7.38%
	B. 12.30%, 7.38%
	C. 10.30%, 6.38%
	D. 12.30%, 6.75%

Response Feedback:

Correct!

Question 2

1 out of 1 points

David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security: Par value=$1,000; Coupon interest rate=6%; Cost=$930, Years to maturity=10; Tax bracket=20%. Calculate the before-tax cost and after-tax cost of the Sony bond given Davids tax bracket.

Selected Answer:	A. Before-tax cost = 7.0% , After-tax cost = 5.6%
Answers:	A. Before-tax cost = 7.0% , After-tax cost = 5.6%
	B. Before-tax cost = 8.0% , After-tax cost = 6.4%
	C. Before-tax cost = 6.00% , After-tax cost = 4.8%
	D. Before-tax cost = 9.0% , After-tax cost = 7.2%

Response Feedback:

Correct!

Question 3

0 out of 1 points

Equity Lightning Corp. wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 10% preferred stock, and 60% common stock. The cost of financing using retained earnings is 14%, the cost of preferred stock financing is 9%, and the before-tax cost of debt financing is 11%. Calculate the weighted average cost of capital (WACC) given the following tax rate assumptions: (1) tax rate=40%, (2) tax rate=35%, (3) tax rate= 25%, describe the effect of tax rate on WACC.

Selected Answer:	A. (1) 11.28% (2) 11.45% (3) 11.78% As the tax rate decreases, the WACC decreases due to the reduced tax expense.
Answers:	A. (1) 11.28% (2) 11.45% (3) 11.78% As the tax rate decreases, the WACC decreases due to the reduced tax expense.
	B. (1) 12.82% (2) 13.35% (3) 13.88% As the tax rate decreases, the WACC increases due to the reduced tax shield from the tax-deductible interest on debt.
	C. (1) 11.28% (2) 11.45% (3) 11.78% As the tax rate increases, the WACC increases due to the reduced tax shield from the tax-deductible interest on debt.
	D. (1) 11.28% (2) 11.45% (3) 11.78% As the tax rate decreases, the WACC increases due to the reduced tax shield from the tax-deductible interest on debt.

Response Feedback:

Try again! These hints may help you!

(1). WACC = (0.30)(11%)(1 - 0.40) + (0.10)(9%) + (0.60)(14%)=?

(2). WACC = (0.30)(11%)(1 - 0.35) + (0.10)(9%) + (0.60)(14%)=?

(3). WACC = (0.30)(11%)(1 0.25) + (0.10)(9%) + (0.60)(14%)=?

As the tax rate ________, the WACC _______________________ due to the ____________ tax shield from the tax-deductible interest on debt.

Question 4

1 out of 1 points

J&M Corporations common stock has a beta, b, of 1.2. The risk free rate is 6 %, and the market return is 11%. Determine J&Ms cost of common stock equity using the CAPM.

Selected Answer:	B. 12%
Answers:	A. 11%
	B. 12%
	C. 10%
	D. 13%

Response Feedback:

Correct!

Question 5

1 out of 1 points

Oxy Corporation uses debt, preferred stock, and common stock to raise capital. The firms capital structure targets the following proportion: debt, 55%; preferred stock, 10%; and common stock, 35%. If the cost of debt is 6.7%, preferred stock costs 9.2%, and common stock costs 10.6%, what is Oxys weighted average cost of capital (WACC)?

Selected Answer:	B. 8.32%
Answers:	A. 8.96%
	B. 8.32%
	C. 7.56%
	D. 10.14%

Response Feedback:

Correct!

Question 6

0 out of 1 points

Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the companys outstanding bonds is 7.75%; its tax rate is 40%; the next expected dividend is $0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price of the stock is $15.00 per share; the flotation cost for selling new shares is F = 10%; and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget?

Selected Answer:	A. 11.04%
Answers:	A. 11.04%
	B. 9.05%
	C. 8.04%
	D. 7.06%

Response Feedback:

Try again! These hints may help you!

YTM 7.75%

Tax rate 40%

D₁ $0.65

g 6.00%

P₀ $15.00

F 10.0%

w_d 45%

w_s 55%

r_d(1 T) 1

r_e = D₁/(P₀ (1 F)) + g 2

WACC = w_d(r_d)(1 T) + w_s(r_s) = 3

Question 7

1 out of 1 points

Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.

Assets

Current assets $ 38,000,000

Net plant, property, and equipment 101,000,000

Total assets $139,000,000

Liabilities and Equity

Accounts payable $ 10,000,000

Accruals 9,000,000

Current liabilities $ 19,000,000

Long-term debt (40,000 bonds, $1,000 par value) 40,000,000

Total liabilities $ 59,000,000

Common stock (10,000,000 shares) 30,000,000

Retained earnings 50,000,000

Total shareholders' equity 80,000,000

Total liabilities and shareholders' equity $139,000,000

The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. The firm's tax rate is 40%. What is the best estimate of the firm'sWACC?

Selected Answer:	A. 11.53%
Answers:	A. 11.53%
	B. 12.13%
	C. 18.67%
	D. 13.03%

Response Feedback:

Correct!

Question 8

1 out of 1 points

Daves Inc. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The companys tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stocks beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

Selected Answer:	C. 8.79%
Answers:	A. 9.75%
	B. 10.79%
	C. 8.79%
	D. 7.75%

Response Feedback:

Correct!

Question 9

1 out of 1 points

Determine the cost for each of the following preferred stocks

Case	Par value	Sale price	Flotation cost	Annual dividend
A	$100	$101	$9.00	11%
B	$40	$38	$3.50	8%
C	$35	$37	$4.00	$5.00
D	$30	$26	5% of par	$3.00
E	$20	$20	$2.50	9%

Selected Answer:

Preferred Stock	Cost
A	11.96%
B	9.28%
C	15.15%
D	12.24%
E	10.29%

Answers:

Preferred Stock	Cost
A	11.96%
B	9.28%
C	15.15%
D	12.24%
E	10.29%

Preferred Stock	Cost
A	11.96%
B	9.28%
C	15.15%
D	12.24%
E	11.25%

Preferred Stock	Cost
A	11.96%
B	9.28%
C	17.25%
D	12.24%
E	10.29%

Preferred Stock	Cost
A	11.96%
B	9.28%
C	15.15%
D	9.24%
E	10.29%

Response Feedback:

Correct!

Question 10

1 out of 1 points

Eakins Inc.s common stock currently sells for $45.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of common from retained earnings?

Selected Answer:	B. 0.37%
Answers:	A. 0.48%
	B. 0.37%
	C. 0.57%
	D. 0.75%

Response Feedback:

Correct!

Question 11

1 out of 1 points

Edna Recording Studios, Inc., reported earnings available to common stock of $4200000 last year. From these earnings, the company paid a dividend of $1.26 on each of its 1000000 common shares outstanding. The capital structure of the company includes 40% debt, 10% preferred stock, and 50% common stock. It is taxed at a rate of 40%.

If the market price of the common stock is $40 and dividends are expected to grow at a rate of 6% for the foreseeable future, what is the companys cost of retained earnings financing?

Selected Answer:	D. 9.34%
Answers:	A. 5.86%
	B. 9.09%
	C. 10.06%
	D. 9.34%

Response Feedback:

Correct!

Question 12

1 out of 1 points

If underpricing and flotation costs on new shares of common stock amount to $7.00 per share, what is the companys cost of new common stock financing? (Assume the market price of the common stock is $40 and that dividends are expected to grow at a rate of 6% for the foreseeable future.)

Selected Answer:	D. 10.05%
Answers:	A. 9.06%
	B. 9.34%
	C. 7.00%
	D. 10.05%

Response Feedback:

Correct!

Question 13

1 out of 1 points

The company can issue $2.00 dividend preferred stock for a market price of $25.00 per share. Flotation costs would amount to $3.00 per share. What is the cost of preferred stock financing?

Selected Answer:	9.09%
Answers:	9.09%
	10.06%
	7.99%
	9.86%

Response Feedback:

Correct!

Question 14

1 out of 1 points

The company can issue $1000-par-value, 10% coupon, 5-year bonds that can be sold for $1200 each. Flotation costs would amount to $25.00 per bond. What is the after tax cost of debt financing?

Selected Answer:	D. 3.52%
Answers:	A. 10.00%
	B. 6.99%
	C. 5.86%
	D. 3.52%

Response Feedback:

Correct!

Question 15

1 out of 1 points

Eggs,Inc. reported earnings available to common stock of $4200000 last year. From these earnings, the company paid a dividend of $1.26 on each of its 1000000 common shares outstanding. The capital structure of the company includes 40%debt, 10% preferred stock, and 50% common stock. It is taxed at a rate of 40%. The market price of the common stock is $40and dividends are expected to grow at a rate of 6% for the foreseeable future. The company plans to issue $2.00 dividend preferred stock for a market price of $25.00 per share. Flotation costs would amount to $3.00 per share. In addition,the company will also issue $1000-par-value, 10% coupon, 5-year bonds that can be sold for $1200 each. Flotation costs would amount to $25.00 per bond. What is the WACC?