Question 18(4 points)

18.What is Amazon's cost of debt if the coupon rate is 6%, the current bond price is $990, and there is twenty-two years left to maturity.

Question 18 options:

A) 6%

B) 6.084%

C) 3.042%

D) 2.656%

E) 12%

Question 19(4 points)

19.If the market value of equity is $500m and the market value of debt is $720m, then what are the capital structure weights?

Question 19 options:

A)W_E= 41% and W_D= 59%

B) W_E= 59% and W_D= 41%

C)W_E= 50% and W_D= 50%

D)W_E= 70% and W_D= 30%

E)W_E= 20% and W_D= 80%

Question 20(4 points)

20. For a project with a life of four years, if the amount of Net Working Capital (NWC) that is originally needed is $3,500, and then in year two $1,650, and then $2,000 in year three until the end of the project, what would the changes to NWC be?

Question 20 options:

A) Year 0: -$3,500; Year 1: $0; Year 2: $0; Year 3: $0; Year 4: $3,500

B) Year 0: -$3,500; Year 1: $1,850; Year 2: -$350; Year 3: $0; Year 4: $0

C) Year 0: -$3,500; Year 1: $0; Year 2: $1,850; Year 3: -$350; Year 4: $2,000

D) Year 0: $3,500; Year 1: $1,850; Year 2: $350; Year 3: $0; Year 4: $0

E)Year 0: -$3,500; Year 1: -$3,500; Year 2: -$5,150; Year 3: -$7,150; Year 4: $7,150

Question 21(4 points)

21.Which of the following is false?

Question 21 options:

A) The "stand alone principal" is used to calculate CFFA in capital budgeting.

B) Past marketing research studies should not be included in CFFA as they are sunk cost.

C) In general, the CAPM is considered a more accurate way to estimate the Cost of Equity than the dividend growth model approach.

D)Depreciation itself is a non-cash expense; consequently, it is only relevant for inclusion in capital budgeting because it affects taxes.

E) All the above are true.

Question 22(4 points)

22.In the financial market equilibriumthe required return to an investor for a stock is the same as the cost of equity to the company.

Question 22 options:

TrueFalse

Question 23(6 points)

23.A proposed investment has an equipment cost of $600.It will have a life of 2 years. The cost will be depreciated straight-line to a zero-salvage value. Sales will be $2,150 per year and variable costs will run $208 per year, and fixed cost $106 per year. The firm will also need to invest $480 in net working capital.The corporate marginal tax rate is 32% while the average tax rate is 37%.What are the cash flows from assets (CFFA) for this project?

Question 23 options:

A)Year 0: $1,080; Year 1: $1,836; Year 2: $2,316

B) Year 0: -$1,080; Year 1: $1,344.48; Year 2: $1,344.48

C)Year 0: -$1,080; Year 1: $1,044.48; Year 2: $1,524.48

D)Year 0: -$1,080; Year 1: $1,344.48; Year 2: $1,824.48

E)Year 0: -$2,424.48; Year 1: $1,344.48; Year 2: $1,824.48

Question 24(6 points)

24.Yahoo's capital structure weight for debt is 55%, and the bonds have a coupon rate of 6.4% and a yield-to-maturity of 6.7%.The capital structure weight for equity is 30%. The stock currently trades at $32 per share, the next dividend is expected to be $1.40 and dividends are expected to grow at 1.8%. The capital structure weight for Preferred Stock is 15%, it is currently selling for $22 a share, and pays dividends of $1.50 per year. If the average tax rate is 22% and the marginal rate is 30%.What is the firm's weighted average cost of capital (WACC)?

Question 24 options:

A) 1.85%

B) 5.45%

C) 6.56%

D) 12.89%

E) 18.34%