QUESTION 84 The following data apply to the next 2 problems. Suppose Mr.X wants to sell a share of ABD stock which he bought for $100 two years ago. The selling price today is $140. He pays 20% tax on capital gains and pays 30% tax on dividend income. Suppose further that tomorrow is the ex-dividend date, and the amount of dividend is $5 per share. If he sells the stock today, what would be the after-tax income from the sales? $130 $131.5 $132 $133 $140 QUESTION 85 If he can sell the share for $135 tomorrow morning, what would be the after-tax income from the sales? $130 $131.5 $132 O $133 $140 QUESTION 86 The following data apply to the next 2 problems. Midwest Electric recently declared a 20 percent stock dividend. On the date of the stock dividend Midwest had 16 million shares outstanding priced at $46 per share in the market. An accounting entry was required on the balance sheet transferring some retained earnings to the common stock account. Retained earnings were $280 million prior to the transaction. (See the table below.) Stockholders' Equity Accounts (millions of dollars) (Before Stock Dividend) Common Stock (16 million shares outstanding, $2 par) $32 Additional Paid-in capital 88 Retained Earnings 280 Total common stockholders' equity 400 What was the dollar amount of retained earnings after the transfer? $130m $131.25m $132.8m $134.4m $145m 1 points Save Answer 1 points Save Answer 1 points Save Answer QUESTION 87 What was the dollar amount of par value after the transfer? O $33.8m 1 points Save Answer $36.8m $38.4m $44.8m $50.2m QUESTION 79 What is the APV of the project? $12,341 $27,799 $31,283 $35,779 $45,337 QUESTION 80 Suppose the FTE approach is used to evaluate the project for the next 3 questions. Use the information in Problem 76, How much is the levered cash flow? $42,250 $48,000 $55,236 $64,203 $70,520 QUESTION 81 What is the rs, discount rate for the equity of the levered firm? 16.25% 18.14% 19.06% 19.67% 20.20% QUESTION 82 What is the Initial Net Equity Investment? $200,000 $225,500 $250,500 $275,500 $305,615 QUESTION 83 For the next question suppose the WACC approach is used to evaluate the project. Use the information in Problem 76, What is the "WACC of the project? 12.48% 13.33% 14.96% 15.23% 18.34% 1 points Save Answer 1 points Save Answer 1 points Save Answer 1 points Save Answer 1 points Save Answer QUESTION 64 For the next 2 questions suppose the following holds: The risk-free rate is 6%, the market risk premium (=E(RM) - RF) is 9%. You invest $600 in Security A with a beta of 1.2 and $400 in Security B with beta of 1.5. What is the beta of this formed portfolio? 1.15 1.3 1.32 1.41 1.52 1 points Save Answer QUESTION 65 1 points Save Answer Based on the CAPM, what is the required rate of return of your portfolio? 14.37% 15.42% 16.68% 17.88% 18.25% QUESTION 66 The following information applies to the next 10 problems. The Wallace Corporation is a zero growth firm with an expected EBIT of $800,000 on a permanent basis, and corporate tax rate of 40 percent. Wallace uses no debt, and the cost of equity to an unlevered firm in the same risk class is 12.0 percent. The firm has 100,000 shares outstanding. What is the value of the firm? $2,500,000 $2,800,000 $3,800,00 $4,000,000 $4,400,000 QUESTION 67 What is the EPS (earnings per share) of the firm? $4.0 $4.2 $4.4 $4.6 $4.8 QUESTION 68 What is the price per share of the firm's stock? $34 $36 $38 $40 $44 1 points Save Answer 1 points Save Answer 1 points Save Answer QUESTION 69 The following information applies to the next 7 problems. Now, the Wallace Corporation decides to change its capital structure by borrowing $1.5 million at 8% interest on a permanent basis, and repurchasing some of its stocks. We still assume the same information from above. The Wallace Corporation is a zero growth firm with an expected EBIT of $800,000 on a permanent basis, and corporate tax rate of 40 percent. When Wallace used no debt, and the cost of equity to an unlevered firm in the same risk class is 12.0 percent. The firm had 100,000 shares outstanding before the repurchase. What is the value of the firm with $1.5 million debt, according to MM with corporate taxes? $3,600,000 $3,800,000 $4,350,00 $4,600,000 $5,250,000 QUESTION 70 What is the value of equity? $2,700,000 $3,100,000 $3,350,000 $3,450,000 $3,750,000 QUESTION 71 What is the firm's cost of equity when the firm uses $1,500,000 debt? 12.5% 13.16% 13.54% 14.25% 15.16% 1 points Save Answer 1 points Save Answer 1 points Save Answer QUESTION 72 1 points Save Answer What is the stock price of the firm at which shares are repurchased? $38 $40.33 $43 $44 $46 QUESTION 73 1 points Save Answer What is the number of shares the firm repurchases with $1,500,000? 00000 32,609 34,091 34,884 37,190 O 39,474 QUESTION 87 What was the dollar amount of par value after the transfer? $33.8m $36.8m 1 points Save Answer $38.4m $44.8m $50.2m QUESTION 88 Strategic Systems Inc. expects to have net income of $1,000,000 during the next year. Its target, and current, capital structure is 40 percent debt and 60 percent common equity. The Director of Capital Budgeting has determined that the optimal capital budget for next year is $1.2 million. If Strategic uses the residual dividend model to determine next year's dividend payout, what is the expected payout ratio? 20% 24% 28% 30% 34% 1 points Save Answer QUESTION 74 What is the EPS (earnings per share) of the firm, when the firm uses $1,500,000 debt? $5.35 $5.53 $5.77 O $6.05 $6.42 QUESTION 75 What is the firm's value when both corporate and personal taxes are considered. Assume that the personal tax rates of Wallace's investors are 30 percent on debt (interest) income and 20 percent (on average) on income from stocks. $4,00,000 O $4,211,333 O $4,314,286 $4,471,429 $4,600,000 QUESTION 76 For the next 8 questions suppose the following data. The Also Horns Corp. is planning on introducing a new line of saxophones. They expect sales to be $400,000 with total fixed and variable costs representing 70% of sales. The discounted rate of the unlevered equity is 17%, but the firm plans to raise $144,385 of the initial $450,000 investment as 9% perpetual debt. The corporate tax rate is 40% and the target debt to asset (or value) ratio is 0.3. In addition to the information above, suppose the APV approach is used to evaluate the project for the next 4 questions. How much is the unlevered cash flow? $72,000 $84,000 $100,000 $120,000 $144,000 QUESTION 77 What is the NPV of the project to an all-equity firm? $-34,451 $-26,471 $-12,417 $25,376 $34,451 QUESTION 78 What is the NPV of the financing side effects (NPVF)? $44,334 $57,754 $62,250 $65,000 $75,250 1 points Save Answer 1 points Save Answer 1 points Save Answer 1 points Save Answer 1 points Save Answer