Transcribed image text: BD Corporation has 8,000,000 shares of common stock outstanding, 800,000 shares of preferred stock outstanding and 187,500 bonds outstanding. The common stock currently sells for $37.50 and just paid a dividend today of $2.00 per share and is expected to grow at a constant rate of 10%. The preferred stock currently sells for $62.50 per share and pays a dividend of $4.00. The bonds have a coupon of 7%, compounding semiannually, 15 years to maturity and sells for $800. BD Corp. has a tax rate of 34%. Calculate the weighted average cost of capital (WACC). You will use this WACC rate for the upcoming NPV calculation for BD Corporation. O 11.9076% O 12.0376% O 11.7676% O 12.0476% BD Corporation is contemplating the purchase of a new $500,000 laser cutter to help with the production of its flat screen TV displays. The laser cutter will be depreciated straight-line over its five-year useful life. BD Corporation will want to upgrade the laser cutter after three years to a more technologically advanced model. At the end of the third year, it is estimated that it can be sold for $250,000. The new laser cutter will generate $300,000 per year in Sales, $75,000 in Variable Costs and $50,000 in Fixed Costs. The laser cutter will require a $25,000 investment in Net Working Capital (NWC). The tax rate is 35 percent. Use the Weighted Average Cost of Capital (WACC) from the BD Corporation question for your discount rate. What is the Net Present Value (NPV) of this project? Should we accept/reject this project? $40,030.2959 / Accept O $1,065,030.296 / Accept $15,030.2959 / Accept O $15,030,2959 / Reject BD Corporation is contemplating the purchase of a new $500,000 laser cutter to help with the production of its flat screen TV displays. The laser cutter will be depreciated straight-line over its five-year useful life. BD Corporation will want to upgrade the laser cutter after three years to a more technologically advanced model. At the end of the third year, it is estimated that it can be sold for $250,000. The new laser cutter will generate $300,000 per year in Sales, $75,000 in Variable Costs and $50,000 in Fixed Costs. The laser cutter will require a $25,000 investment in Net Working Capital (NWC). The tax rate is 35 percent. What is the Internal Rate of Return (IRR) of this project? Should we accept/reject this project if we can borrow money from Bank of America at 15%? 13.4406% / Accept 13.4406% / Reject O 14.5630% / Accept 15.9022% / Accept BD Corporation is contemplating the purchase of a new $500,000 laser cutter to help with the production of its flat screen TV displays. The laser cutter will be depreciated straight-line over its five-year useful life. BD Corporation will want to upgrade the laser cutter after three years to a more technologically advanced model. At the end of the third year, it is estimated that it can be sold for $250,000. The new laser cutter will generate $300,000 per year in Sales, $75,000 in Variable Costs and $50,000 in Fixed Costs. The laser cutter will require a $25,000 investment in Net Working Capital (NWC). The tax rate is 35 percent. What is the Profitability Index (P/I) of this project with a 10% discount rate? Should we accept/reject this project? 0.0286 / Reject 1.0731 / Reject 1.0801 / Accept 1.0731 / Accept The managers of ABC Corporation plan to manufacture replacement heat shields for the NASA shuttle program. They expect to sell 10,000 shields annually for the next 5 years at a sales price of $300 each. The necessary machining equipment will cost a total of $2,000,000 and will be depreciated straight-line over the project's 5- year life. The firm expects to be able to sell the manufacturing equipment for $250,000 at the end of the 4th year. There will be an initial increase in spending of $175,000 for net working capital. Variable costs are $50 per unit and fixed costs are $500,000 per year. Assume a 30% tax rate. Use the weighted average cost of capital (WACC) from the BD Corporation question for your discount rate. What is the Net Present Value (NPV) of this project? Should we accept/reject this project? $2.735,332.711 / Reject $2,765,645.268 / Accept $2,629,303.393 / Accept $2.735,332.711 / Accept (od 9 Ps ... Gordon Gecko is 25 years old today and is beginning to plan for his retirement. He wants to set aside equal amounts for the next 40 years so that he can retire at age 65. He expects to live to a maximum age of 90 and wants to be able to withdraw $50,000 per year for 25 years at the beginning of each year. The account is expected to earn 8% APR for the working period and 5% APR for the retirement period. How much must he invest at the end of each month to achieve this goal? O $220.3902 O $238.0214 $2,856.574 O $211.9537 IBM bond is a 6% coupon bond. Ford bond is a 10% coupon bond. Both bonds have 10 years to maturity, make semiannual payments, and have a yield to maturity of 12%. If current interest rates rise by 2%, what is the percentage change in the price of the IBM Bond? O 52.4617% -42.3761% - 11.8423% 0 -12.1456% IBM bond is a 6% coupon bond. Ford bond is a 10% coupon bond. Both bonds have 10 years to maturity, make semiannual payments, and have a yield to maturity of 12%. If current interest rates rise by 2%, what is the percentage change in the price of the Ford Bond? 0 -21.1880% O 12.9560% O -10.7847% 0 -10.9772% You want to purchase a new car from BD Motors for $50,000. The contract is in the form of a 60-month annuity-due at 6% interest APR. If you put $20,000 down today, what will your monthly payment be and what is the Effective Annual Interest Rate (EAR) on this loan? O $593.4910 / 6.1805% O $559.8972 / 6.1805% O $577.0986 76.1678% O $579.9840 / 6.1678% XYZ Corp has calculated their required rate of return on their common stock should be 13%. XYZ just paid a dividend of $2.15 per share and expects the dividend to grow by 25% for the first year and 20% for the following two years and 15% for the final year and settling at a constant growth rate of 8% forever. What is the price per share of XYZ Corp stock today? $69.2745 $89.0100 $64.9071 $96.1308 XYZ Corp has calculated their required rate of return on their common stock should be 13%. XYZ just paid a dividend of $2.15 per share and expects the dividend to grow by 25% for the first year and 20% for the following two years and 15% for the final year and settling at a constant growth rate of 8% forever. What is the dividend yield? 2.7957% 3.8795% O 2.2365% 3.1036% XYZ Corp has calculated their required rate of return on their common stock should be 13%. XYZ just paid a dividend of $2.15 per share and expects the dividend to grow by 25% for the first year and 20% for the following two years and 15% for the final year and settling at a constant growth rate of 8% forever. What is the blended growth rate / capital gains rate for XYZ Corp? O 10.7635% 9.1205% 9.8964% 10.2043% You are going to invest in either a Traditional IRA or a Roth IRA for 30 years. You plan to invest $200 per month in either choice. The Traditional IRA is paying 8% APR compounded quarterly at the end of the month. The Roth IRA is paying 9% APR compounded daily at the beginning of the month. What is the difference in dollars between the two choices when you retire? O $6,427.5400 $77.130.4803 O $6,419.9374 O $77,039.2489 You want to invest $12,500 per year for the next 40 years. You are offered an investment plan that will pay you 7.25% APR for the next 20 years and 8.50% APR for the last 20 years. How much will you have at the end of 40 Years? Assume that the cash flows happen at the end of the period. $259,090.0852 O $3,296,981.750 O $2,692,269.085 $2,087,556.420 You going to purchase a new storage facility for $1,250,000. The loan is a 15-year fixed loan with a 3.875% APR. You are planning to put 20% down on this loan. Assume the payments are being made at the end of the period. What is your monthly payment? O $7,429.7287 $9,287.1609 $7,334.3952 $9,1679.9940 You going to purchase a new storage facility for $1,250,000. The loan is a 15-year fixed loan with a 3.875% APR. You are planning to put 20% down on this loan. Assume the payments are being made at the end of the period. You decide to refinance the loan at the end of the 5th year at a lower interest rate. What is the balance on the loan at the end of the 5th year? O $979,340.8639 O $910,859.4442 O $727,661.9957 O $728,687.5557 You going to purchase a new storage facility for $1,250,000. The loan is a 15-year fixed loan with a 3.875% APR. You are planning to put 20% down on this loan. Assume the payments are being made at the end of the period. Assuming 15 years later you have paid off all principal and interest, what was the total cost of your mortgage over the 15 years? O $1,650,238.920 O $1,000,000 $2,420,472.368 $1,320,191.136 You going to purchase a new storage facility for $1,250,000. The loan is a 15-year fixed loan with a 3.875% APR. You are planning to put 20% down on this loan. Assume the payments are being made at the end of the period. How much interest did you pay in the 8th year only? O $24.237.9654 $22.268.3237 $16,012.8399 $242,946.3182 Magic Software has 7.25% coupon bonds on the market with 15 years to maturity. The bonds compound semiannually and currently sell for $950. What is the Yield to Maturity (YTM) O 7.2500% O 7.8221% O 7.8280% 3.9110% Magic Software has 7.25% coupon bonds on the market with 15 years to maturity. The bonds compound semiannually and currently sell for 95% of par. What is the Effective Annual Yield (EAY) 7.8221% O 7.9812% O 7.9751% O 3.9492%