Walter Corp.'s outstanding bonds have a 5.8% coupon, 5 years left until maturity, and are currently priced at $974.67. The firm's marginal tax rate is 37%. Walter's after-tax cost of debt is ____%. Skyler Industries?s preferred stock currently sells for $37 per share. The stock pays an annual dividend of $2.60 per share. The cost of preferred stock, Rp, is ____%.

Hank Corp.'s common stock currently sells for $25 per share. The most recent dividend (Do) was $2.20, and the expected growth rate in dividends per year is 4%. The cost of common equity, Re, is ____%. Jesse Corp.'s stock has a Beta of 0.95. The risk-free rate is 4%, and the expected market return is 13%. The firm's cost of common equity, Re, is _____%. PeteCorp?s stock has a Beta of 1.00. Its dividend is expected to be $2.40. next year (D1), and will grow by 5% per year indefinitely. Assume the risk-free rate is 5%, and the Market Risk Premium is 8%. The stock price would currently be estimated to be $ _________. Pollo Inc.'s 8.25% bonds have a YTM of 10.00%. The estimated risk premium between the company's bonds and stocks is 3%. Pollo's cost of common equity, Re, is ____%.

• Marie Corp. has $1,200 in debt outstanding and $2,600 in common stock (and no preferred stock). Its marginal tax rate is 40%. Marie's bonds have a YTM of 5.50%. The current stock price (Po) is $46. Next year's dividend is expected to be $2.20, and it is expected to grow at a constant rate of 7% per year forever. The company's W.A.C.C. is ____%.

• Badger Corp. has an issue of 8% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $1,007, and pay interest semiannually. The firm?s marginal tax rate is 40%. The estimated risk premium between the company?s stock and bond returns is 7%. The firm expects to maintain a capital structure with 40% debt and 60% equity going forward. The company?s W.A.C.C is _________%.

• Project S costs $2,600 up front, and its expected net cash inflows are $840 per year for 9 years (with the first inflow occurring one year from today). If the WACC is 14%, the project's NPV is $_________.

• Project A costs $3,600 up front, and its expected net cash inflows are as follows: $500 in year 1, $600 in year 2, $700 in year 3, and $800 in each of years 4-10. The project's IRR is _________%.

• Project L costs $3,800, its expected cash inflows are $950 per year for 10 years, and its cost of capital is 10%. The project's (regular, i.e. "traditional") payback period in years is ______.

• Oz Corp. is now in the final year of a project. The equipment originally cost $9,800, and the asset has been 75% depreciated. Oz can sell the used equipment today for $1,400, and its tax rate is 35%. The equipment's after-tax net salvage value is $_________.

• Licorne Inc. is considering a project which would involve the purchase of new manufacturing equipment at a cost of $8,400. The equipment would be depreciated on a straight-line basis to a book value of $800 over its 7-year useful life. The firm's marginal tax rate is 35%. The amount of the annual depreciation tax shield that should be included as part of the project's cash flows would be $_______.

• Project M will require a $2,700 increase in Inventories up front, and will simultaneously cause Accounts Payable to increase by $1,200. The net cash flow impact of these changes in year 0 should be recorded as $_______ in the project's cash flow table.

• A new project involves the purchase of a $9000 food processing machine. The machine would be depreciated on a straight-line basis over its 3-year useful life to a book value of $600. At the end of the life of the project (at the year 3 point), the machine will be sold for an estimated $800. The project will cause an increase in Sales of $7,000 in each of years 1 through 3. It is also expected to enhance efficiencies and reduce operating expenses by $1,000 in each of years 1 through 3. The project will require an increase in Accounts Receivable of $1,500 and an increase in Accounts Payable of $600 up front. The project's impact on these accounts is expected to disappear at project end (in year 3). The firm's marginal tax rate is 40%, and its WACC is 12%. The NPV of this project is $_________.

Homework 5: MBA 508 Due: 12/07/2016 (Wed), 6:00 p.m. (in class) 1. Walter Corp.'s outstanding bonds have a 5.8% coupon, 5 years left until maturity, and are currently priced at $974.67. The firm's marginal tax rate is 37%. Walter's after-tax cost of debt is ____%. 2. Skyler Industries's preferred stock currently sells for $37 per share. The stock pays an annual dividend of $2.60 per share. The cost of preferred stock, Rp, is ____%. 3. Hank Corp.'s common stock currently sells for $25 per share. The most recent dividend (Do) was $2.20, and the expected growth rate in dividends per year is 4%. The cost of common equity, Re, is ____%. 4. Jesse Corp.'s stock has a Beta of 0.95. The risk-free rate is 4%, and the expected market return is 13%. The firm's cost of common equity, Re, is _____%. 5. PeteCorp's stock has a Beta of 1.00. Its dividend is expected to be $2.40. next year (D1), and will grow by 5% per year indefinitely. Assume the risk-free rate is 5%, and the Market Risk Premium is 8%. The stock price would currently be estimated to be $ _________. [Note: (CAPM + Stock Valuation) You need to get expected return for this company's stock using CAPM, which will give you Re and then you can use it for stock valuation.] 6. Pollo Inc.'s 8.25% bonds have a YTM of 10.00%. The estimated risk premium between the company's bonds and stocks is 3%. Pollo's cost of common equity, Re, is ____%. 7. Marie Corp. has $1,200 in debt outstanding and $2,600 in common stock (and no preferred stock). Its marginal tax rate is 40%. Marie's bonds have a YTM of 5.50%. The current stock price (Po) is $46. Next year's dividend is expected to be $2.20, and it is expected to grow at a constant rate of 7% per year forever. The company's W.A.C.C. is ____%. 8. Badger Corp. has an issue of 8% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $1,007, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 7%. The firm expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C is _________%. 1 9. Project S costs $2,600 up front, and its expected net cash inflows are $840 per year for 9 years (with the first inflow occurring one year from today). If the WACC is 14%, the project's NPV is $_________. 10. Project A costs $3,600 up front, and its expected net cash inflows are as follows: $500 in year 1, $600 in year 2, $700 in year 3, and $800 in each of years 4-10. The project's IRR is _________ %. 11. Project L costs $3,800, its expected cash inflows are $950 per year for 10 years, and its cost of capital is 10%. The project's (regular, i.e. "traditional") payback period in years is ______. 12. Oz Corp. is now in the final year of a project. The equipment originally cost $9,800, and the asset has been 75% depreciated. Oz can sell the used equipment today for $1,400, and its tax rate is 35%. The equipment's after-tax net salvage value is $_________. 13. Licorne Inc. is considering a project which would involve the purchase of new manufacturing equipment at a cost of $8,400. The equipment would be depreciated on a straight-line basis to a book value of $800 over its 7-year useful life. The firm's marginal tax rate is 35%. The amount of the annual depreciation tax shield that should be included as part of the project's cash flows would be $_______. 14. Project M will require a $2,700 increase in Inventories up front, and will simultaneously cause Accounts Payable to increase by $1,200. The net cash flow impact of these changes in year 0 should be recorded as $_______ in the project's cash flow table. 15. A new project involves the purchase of a $9000 food processing machine. The machine would be depreciated on a straight-line basis over its 3-year useful life to a book value of $600. At the end of the life of the project (at the year 3 point), the machine will be sold for an estimated $800. The project will cause an increase in Sales of $7,000 in each of years 1 through 3. It is also expected to enhance efficiencies and reduce operating expenses by $1,000 in each of years 1 through 3. The project will require an increase in Accounts Receivable of $1,500 and an increase in Accounts Payable of $600 up front. The project's impact on these accounts is expected to disappear at project end (in year 3). The firm's marginal tax rate is 40%, and its WACC is 12%. The NPV of this project is $_________. 2