Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION 8 A company will issue new common stock to finance an expansion. The existing common stock just paid a $1.25 dividend, and dividends are

QUESTION 8

A company will issue new common stock to finance an expansion. The existing common stock just paid a $1.25 dividend, and dividends are expected to grow at a constant rate 9% indefinitely. The stock sells for $45, and flotation expenses of 6% of the selling price will be incurred on new shares. The beta of this company is 1.34. What is the cost of new common stock for this company?

10.16%

11.19%

9.13%

12.22%

8.10%

QUESTION 10

You are considering a new project that will cost $750,000. The project is expected to generate positive cash flows over the next four years in the amounts of $300,000 in year one, $325,000 in year two, $250,000 in year three, and $280,000 in year four. Your required rate of return is 8%. What is the discounted payback period of the project?

2.74 years

2.08 years

2.98 years

2.31 years

2.54 years

QUESTION 11

Suppose you are given the following two projects A and B with the cash flows below, if the cost of capital is 10%, what is the Profitability Index (PI) of projects A and B?

Year Project A Project B
0 -5000 -6000
1 1500 1500
2 2000 2500
3 2500 2500
4 3500 4000

1.457;1.340

1.457;1.492

1.622;1.409

1.532;1.528

1.639;1.340

QUESTION 12

A company is evaluating two independent projects for capital investment purposes. If the company has only $85 million to invest, and its required return is 10 percent by how much the companys value will increase?

All values are in millions.

Project 1

Project 2

0

-50

-50

1

30

0

2

25

0

3

20

0

4

20

150

60.77 million

52.45 million

79.07 million

26.62 million

45.33 million

QUESTION 13

Your company is evaluation 4 independent projects and is subject to capital rationing, detailed as follows:

Project Initial Outlay IRR NPV

1 2 million 18% 2,500,000

2 1 million 15% 950,000

3 1 million 10% 600,000

4 3 million 9% 2,000,000

If you must select projects subject to a budget constraint of 4 million dollars, which set of projects should be accepted so as to maximize firm value?

1 and 2

1 only

2,3 and 4

1 and 4

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Clever Girl Finance Learn How Investing Works Grow Your Money

Authors: Bola Sokunbi

1st Edition

1119696739, 978-1119696735

More Books

Students also viewed these Finance questions

Question

=+is the product of the moment generating functions of X' and Y'.

Answered: 1 week ago