|
Accounting | Business | Computer
Science | General
Studies | Math | Sciences | Civics Exam | Help/Support | Join/Cancel | Contact Us | Login/Log Out
Principles Of Fianance: Homework Chapter 1 Homework 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 | Exam 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 | Final Exam 1 2 For each of the following, compute the future value: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
FV = P*(1 + r)n 3050 (1.18)8 = 9999.17 For each of the following, compute the present value:
Solve for the unknown interest rate in each of the following: (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
R = (FV / PV)1/n -1 (1501 / 775)1/6 - 1 Solve for the unknown number of years in each of the following: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
N = ln (FV / PV) / ln (1 + r) You presently have $64,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Annual rate 10.56  %
R = (FV / PV)1/n -1 (390000 / 64000)1/18 – 1 Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Present Value Years Interest Rate Future Value $ 2,597 11 13% ? $ 7,834 7 9% ? $ 81,286 14 12% ? $ 213,612 16 6% ? $ 9,961.73 $ 14,320.86 $ 397,253.81 $ 542,649.60 For each of the following, compute the present value: Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Present Value Years Interest Rate Future Value ? 17 9% $ 16,832 ? 9 7% $ 48,318 ? 23 13% $ 886,073 ? 35 21% $ 550,164 $ 3,889.42 $ 26,281.79 $ 53,292.40 $ 696.63 Solve for the unknown interest rate in each of the following: Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Present Value Years Interest Rate Future Value $ 181 8 ? % $ 317 $ 335 13 ? % $ 1,080 $ 48,000 11 ? % $ 185,382 $ 40,353 25 ? % $ 531,618 7.26% 9.42% 13.07% 10.86% Solve for the unknown number of years in each of the following: Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Present Value Years Interest Rate Future Value $ 610 ? 7% $ 1,389 $ 940 ? 8% $ 1,821 $ 26,350 ? 9% $ 289,715 $ 43,500 ? 11% $ 430,258 2.16 8.59 27.82 21.96 Assume you earn an annual rate of return of 10 percent and make no additional contributions. What will your account be worth when you retire in 45 years? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What if you wait 10 years before contributing? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Account value? b. Account value? a. $ 400,897.66 b. $ 154,563.40 You have $4,300 to deposit. Regency Bank offers 12 percent per year compounded monthly (1 percent per month), while King Bank offers 12 percent but will only compound annually. How much will your investment be worth in 20 years at each bank? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a. Regency Bank? b. King Bank? a. $ 46,837.98 b. $ 41,479.06 Tomas earned $89 in interest on his savings account last year and has decided to leave the $89 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called: a. discounting b. compounding c. duplicating d. multiplying e. indexing The interest rate used to compute the present value of a future cash flow is called the: a. prime rate b. current rate c. discount rate d. compound rate e. simple rate Computing the present value of a future cash flow to determine what that cash flow is worth today is called: a. compounding b. factoring c. time valuation d. simple cash flow valuation e. discounted cash flow valuation You just won $17,500 and deposited your winnings into an account that pays 6.7 percent interest, compounded annually. How long will you have to wait until your winnings are worth $50,000? a. 15.1 years b. 15.31 years c. 15.52 years d. 15.73 years e. 16.19 years Today, Georgia is investing $24,000 at 5.5 percent, compounded annually, for 6 years. How much additional income could she earn if she had invested this amount at 6.5 percent, compounded annually? a. $1,515.04 b. $1,927.19 c. $2,007,49 d. $2,515.04 e. $2.927.19 You have been told that you need $15,000 today for every $50,000 you want when you retire 30 years from now. What rate of interest was used in the present value computation? Assume interest is compounded annually. a. 4.09% b. 4.15% c. 4.37% d. 4.29% e. 4.53% You have $12,500 you want to invest for the next 30 years. You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years. How much will you have at the end of the 30 years? a. $101,516.38 b. $119,874.49 c. $151,018.51 d. $190,253.91 e. $209,092.54 You want to have $32,000 for a down payment on a house 5 years from now. If you can earn 4.3 percent, compounded annually on your savings, how much do you need to deposit today to reach your goal? a. $25,925.58 b. $28,179.77 c. $21,639.73 d. $21,970.21 e. $24,625.44 Adirondack Corporation will need $1.75 million 3 years from now to replace some equipment. Currently, the firm has some extra cash and would like to establish a savings account for this purpose. The account pays 2.75 percent interest, compounded annually. How much money must the company deposit today to fully fund the equipment purchase? a. $1,613,216.13 b. $1,798,407.21 c. $1,350,868.47 d. $1,876,306.49 e. $1,412,308.18 You and your sister are planning a large anniversary party 3 years from today for your parents' 50th wedding anniversary. You have estimated that you will need $6,500 for this party. You can earn 1.5 percent compounded annually on your savings. How much would you and your sister have to deposit today in one lump sum to pay for the entire party? a. $6,076.55 b. $6,018.26 c. $6,308.16 d. $6,216.06 e. $5,868.81 Cross Town Cookies is an all-equity firm with a total market value of $720,000. The firm has 150,000 shares of stock outstanding. Management is considering issuing $200,000 of debt at an interest rate of 7 percent and using the proceeds to repurchase shares. The projected earnings before interest and taxes are $58,600. What are the anticipated earnings per share if the debt is issued? Ignore taxes. A. $0.25 B. $0.33 C. $0.38 D. $0.41 E. $0.47 Ernst Electrical has 9,000 shares of stock outstanding and no debt. The new CFO is considering issuing $80,000 of debt and using the proceeds to retire 1,500 shares of stock. The coupon rate on the debt is 7.5 percent. What is the break-even level of earnings before interest and taxes between these two capital structure options? A. $18,500 B. $21,000 C. $24,000 D. $32,500 E. $36,000 Northwestern Lumber Products currently has 15,000 shares of stock outstanding. Patricia, the financial manager, is considering issuing $120,000 of debt at an interest rate of 6.75 percent. Given this, how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $60,000? Ignore taxes. A. 12,975 shares B. 13,650 shares C. 14,025 shares D. 14,550 shares E. 15,000 shares Chick 'N Fish is considering two different capital structures. The first option consists of 25,000 shares of stock. The second option consists of 15,000 shares of stock plus $150,000 of debt at an interest rate of 7.5 percent. Ignore taxes. What is the break-even level of earnings before interest and taxes (EBIT) between these two options? A. $2,813 B. $3,134 C. $16,410 D. $28,125 E. $31,338 A firm is considering two different capital structures. The first option is an all-equity firm with 32,000 shares of stock. The second option is 20,000 shares of stock plus some debt. Ignoring taxes, the breakeven level of earnings before interest and taxes between these two options is $48,000. How much money is the firm considering borrowing if the interest rate is 8 percent? A. $175,000 B. $225,000 C. $250,000 D. $275,000 E. $300,000 Room and Board has determined that $36,000 is the breakeven level of earnings before interest and taxes for the two capital structures it is considering. The one structure consists of all equity with 14,000 shares of stock. The second structure consists of 10,000 shares of stock and $80,000 of debt. What is the interest rate on the debt? A. 7.72 percent B. 8.19 percent C. 9.97 percent D. 11.43 percent E. 12.86 percent Shoe Box Stores is currently an all-equity firm with 28,000 shares of stock outstanding. Management is considering changing the capital structure to 40 percent debt. The interest rate on the debt would be 9 percent. Ignore taxes. Jamie owns 300 shares of Shoe Box Stores stock that is priced at $17 a share. What should Jamie do if she prefers the all-equity structure but Shoe Box Stores adopts the new capital structure? A. Borrow money and buy an additional 120 shares. B. Borrow money and buy an additional 180 shares. C. Keep her shares but loan out all of the dividend income at 9 percent. D. Sell 120 shares and loan out the proceeds at 9 percent. E. Sell 180 shares and loan out the proceeds at 9 percent. Katz is an all-equity development company that has 36,000 shares of stock outstanding at a market price of $25 a share. The firm's earnings before interest and taxes are $29,000. Katz has decided to issue $200,000 of debt at a rate of 6 percent and use the proceeds to repurchase shares. What should Faith do if she owns 500 shares of Katz stock and wants to use homemade leverage to offset the leverage being assumed by the firm? A. Borrow money and buy an additional 22 shares B. Borrow money and buy an additional 111 shares C. Sell 22 shares and loan out the proceeds D. Sell 56 shares and loan out the proceeds E. Sell 111 shares and loan out the proceeds Gabella's is an all-equity firm that has 21,000 shares of stock outstanding at a market price of $40 a share. The firm has earnings before interest and taxes of $84,000 and has a 100 percent dividend payout ratio. Ignore taxes. Gabella's has decided to issue $160,000 of debt at a rate of 12 percent and use the proceeds to repurchase shares. Travis owns 500 shares of Gabella's stock and has decided to continue holding those shares. How will Gabella's debt issue affect Travis' annual dividend income? A. Decrease from $2,400 to $1,840 B. Increase from $2,400 to $2,160 C. Decrease from $2,000 to $1,906 D. Increase from $2,000 to $2,094 E. No change Henderson's is an all-equity firm that has 135,000 shares of stock outstanding. Neal, the financial vice-president, is considering borrowing $220,000 at 7.25 percent interest to repurchase 20,000 shares. Ignoring taxes, what is the value of the firm? A. $1,260,000 B. $1,400,000 C. $1,485,000 D. $1,620,000 E. $1,750,000 Tree Farms, Inc. currently has 45,000 shares of stock outstanding and no debt. The price per share is $17.50. The firm is considering borrowing funds at 7.5 percent interest and using the proceeds to repurchase 3,000 shares of stock. Ignore taxes. How much is the firm borrowing? A. $52,500 B. $75,000 C. $110,500 D. $125,000 E. $135,000 A. $52,500 The Gable Inn is an all-equity firm with 16,000 shares outstanding at a value per share of $14.50. The firm is issuing $50,000 of debt and using the proceeds to reduce the number of outstanding shares. How many shares of stock will be outstanding once the debt is issued? Ignore taxes. A. 11,970 shares B. 12,552 shares C. 12,846 shares D. 13,030 shares E. 13,561 shares B. 12,552 shares Western Shores is comparing two separate capital structures. The first structure consists of 260,000 shares of stock and no debt. The second structure consists of 210,000 shares of stock and $1.5 million of debt. What is the price per share of equity? A. $18 B. $22 C. $27 D. $30 E. $33 The Doll House has a pre-tax cost of debt of 7.9 percent and a return on assets of 11.7 percent. The debt- equity ratio 0.45. Ignore taxes. What is the cost of equity? A. 11.87 percent B. 12.03 percent C. 12.47 percent D. 12.98 percent B. 12.03 percent The Outlet has a cost of equity of 16.8 percent, a pre-tax cost of debt of 8.1 percent, and a return on assets of 14.5 percent. Ignore taxes. What is the debt-equity ratio? A. 0.28 B. 0.36 C. 0.44 D. 0.52 E. 0.57 Weston Mines has a cost of equity of 19.8 percent, a pre-tax cost of debt of 9.4 percent, and a return on assets of 17.1 percent. Ignore taxes. What is the debt-equity ratio? A. 0.35 B. 0.41 C. 0.47 D. 0.56 E. 0.62 Clark's Cookies has a return on assets of 15.3 percent and a cost of equity of 17.6 percent. What is the pre-tax cost of debt if the debt- equity ratio is 0.54? Ignore taxes. A. 8.87 percent B. 9.29 percent C. 9.64 percent D. 10.31 percent E. 11.04 percent The Water Works has a return on assets of 13.7 percent, a cost of equity of 18.6 percent, and a pre-tax cost of debt of 7.1 percent. What is the debt-equity ratio? Ignore taxes. A. 0.44 B. 0.47 C. 0.61 D. 0.68 E. 0.74 An all-equity firm has a return on assets of 15.3 percent. The firm is considering converting to a debt- equity ratio of 0.30. The pre-tax cost of debt is 8.1 percent. Ignoring taxes, what will the cost of equity be if the firm switches to the levered capital structure? A. 15.57 percent B. 16.28 percent C. 16.67 percent D. 17.46 percent E. 18.19 percent Stone House Cafe has a 30 percent tax rate and total taxes of $35,280. What is the value of the interest tax shield if the interest expense is $16,700? A. $4,887 B. $5,010 C. $5,395 D. $5,708 E. $6,023 Aaron's Tea House has a 32 percent tax rate and an interest tax shield valued at $6,728 for the year. How much did the firm pay in annual interest? A. $2,153 B. $2,304 C. $2,468 D. $20,507 E. $21,025 Kelner's Nursery has 8,000 bonds outstanding with a face value of $1,000 each. The coupon rate is 6.5 percent and the tax rate is 34 percent. What is the present value of the interest tax shield? A. $2.72 million B. $2.83 million C. $3.09 million D. $3.13 million E. $3.26 million Southern Fried Foods has a $12 million bond issue outstanding with a coupon rate of 6.75 percent and a yield-to-maturity of 7.27 percent. What is the present value of the tax shield if the tax rate is 35 percent? A. $283,500 B. $305,340 C. $3,053,400 D. $3,560,000 E. $4,200,000 Liz's Home Remedy has a $24 million bond issue outstanding with a coupon rate of 7.75 percent and a current yield of 7.67 percent. What is the present value of the tax shield if the tax rate is 34 percent? A. $632,400 B. $625,872 C. $6.28 million D. $8.16 million E. $8.68 million Tropical Fruit Extracts expects its earnings before interest and taxes to be $218,000 a year forever. Currently, the firm has no debt. The cost of equity is 16.3 percent and the tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm? A. $371,429 B. $431,971 C. $747,485 D. $869,325 E. $988,315 Kline Construction is an all-equity firm that has projected perpetual earnings before interest and taxes of $879,000. The current cost of equity is 18.3 percent and the tax rate is 34 percent. The company is in the process of issuing $6.2 million of 8.5 percent annual coupon bonds at par. What is the levered value of the firm? A. $5,278,164 B. $5,541,085 C. $6,422,225 D. $6,713,185 E. $7,385,695 Stevenson's Bakery is an all-equity firm that has projected perpetual earnings before interest and taxes of $138,000 a year. The cost of equity is 13.7 percent and the tax rate is 32 percent. The firm can borrow money at 6.75 percent. Currently, the firm is considering converting to a debt-equity ratio of 0.45. What is the firm's levered value? A. $527,613 B. $689,919 C. $752,987 D. $829,507 E. $903,682 Hot To Go is an all-equity firm specializing in hot ready-to-eat meals. Management has estimated the firm's earnings before interest and taxes will be $167,000 annually forever. The present cost of equity is 15.1 percent. Currently, the firm has no debt but is considering borrowing $750,000 at 9 percent interest. The tax rate is 34 percent. What is the value of the unlevered firm? A. $623,017 B. $646,511 C. $704,141 D. $729,934 E. $755,200 Great Lakes Shipping is an all-equity firm with anticipated earnings before interest and taxes of $439,000 annually forever. The present cost of equity is 16.4 percent. Currently, the firm has no debt but is considering borrowing $1.25 million at 8.5 percent interest. The tax rate is 36 percent. What is the value of the levered firm? A. $2,163,171 B. $2,406,519 C. $2,588,547 D. $2,666,667 E. $2,818,181 Jericho Snacks is an all-equity firm with estimated earnings before interest and taxes of $826,000 annually forever. Currently, the firm has no debt but is considering borrowing $650,000 at 6.75 percent interest. The tax rate is 34 percent and the current cost of equity is 17.2 percent. What is the value of the levered firm? A. $3,187,271 B. $3,169,535 C. $3,307,271 D. $3,390,535 E. $3,506,418 The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percent. The estimated earnings before interest and taxes are $239,000 annually forever. Currently, the firm has no debt but is in the process of borrowing $400,000 at 9.5 percent interest. The tax rate is 30 percent. What is the value of the unlevered firm? A. $849,207 B. $853,571 C. $856,411 D. $919,307 E. $926,667 Coaster's has a cost of equity of 15.4 percent, a return on assets of 10.2 percent, and a cost of debt of 7.3 percent. There are no taxes. What is the firm's weighted average cost of capital? A. 7.30 percent B. 10.20 percent C. 10.97 percent D. 15.40 percent E. Cannot be determined from the information provided. A firm has a cost of debt of 7.5 percent and a cost of equity of 16.2 percent. The debt-equity ratio is 0.45. There are no taxes. What is the firm's weighted average cost of capital? A. 11.75 percent B. 12.29 percent C. 13.50 percent D. 14.47 percent E. 16.20 percent A firm has a weighted average cost of capital of 11.68 percent and a cost of equity of 15.5 percent. The debt-equity ratio is 0.65. There are no taxes. What is the firm's cost of debt? A. 5.80 percent B. 6.27 percent C. 6.44 percent D. 7.23 percent E. 7.81 percent Jasper Industrial has no debt outstanding and a total market value of $110,000. Earnings before interest and taxes, EBIT, are projected to be $12,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 20 percent lower. Jasper Industrial is considering a $35,000 debt issue with a 7 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 7,500 shares outstanding. Ignore taxes for this problem. What is the percentage change in EPS when a normal economy slips into recession? A. -33 percent B. -25 percent C. -20 percent D. -16 percent E. -10 percent Gabe's Market is comparing two different capital structures. Plan I would result in 11,000 shares of stock and $225,000 in debt. Plan II would result in 14,000 shares of stock and $150,000 in debt. The interest rate on the debt is 8 percent. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $45,000. The all-equity plan would result in 20,000 shares of stock outstanding. Of the three plans, the firm will have the highest EPS with and the lowest EPS with . A. Plan I; Plan II B. Plan I; all-equity plan C. Plan II; Plan I D. Plan II; all-equity plan E. all-equity plan; Plan I Uptown Construction is comparing two different capital structures. Plan I would result in 23,000 shares of stock and $320,000 in debt. Plan II would result in 17,000 shares of stock and $260,000 in debt. The interest rate on the debt is 10 percent. Ignoring taxes, EPS will be identical for Plans I and II when EBIT equals which one of the following? A. $8,550 B. $9,000 C. $9,600 D. $10,400 E. $10,750 Bruno's is considering a change from its current capital structure. Bruno's currently has an all-equity capital structure and is considering a capital structure with 30 percent debt. There are currently 6,500 shares outstanding at a price per share of $46. EBIT is expected to remain constant at $43,000. The interest rate on new debt is 8.5 percent and there are no taxes. Tracie owns $20,700 worth of stock in the company. The firm has a 100 percent payout. What would Tracie's cash flow be under the new capital structure assuming that she keeps all of her shares? A. $1,998 B. $2,227 C. $2,815 D. $3,027 E. $3,499 Delta Mowers has a debt-equity ratio of 1.2. Its WACC is 10.1 percent, and its cost of debt is 7.5 percent. There is no corporate tax. What is the firm's cost of equity capital? A. 12.60 percent B. 13.22 percent C. 13.83 percent D. 14.29 percent E. 14.80 percent Triangle Enterprises has no debt but can borrow at 9 percent. The firm's WACC is currently 14.7 percent, and there is no corporate tax. If the firm converts to 70 percent debt, what will its cost of equity be? A. 20.67 percent B. 22.95 percent C. 24.47 percent D. 26.39 percent E. 28.00 percent M.G. Movers can borrow at 7.5 percent. The firm currently has no debt, and the cost of equity is 16 percent. The current value of the firm is $540,000. What will the value be if the firm borrows $160,000 and uses the proceeds to repurchase shares? The corporate tax rate is 34 percent. A. $528,000 B. $540,000 C. $552,000 D. $571,000 E. $594,400 Snow Mountain Resort has a 33 percent tax rate. Its total interest payment for the year just ended was $6.8 million. What is the interest tax shield? A. $2,006,500 B. $2,244,000 C. $2,410,600 D. $2,525,000 E. $2,618,000 Marcos & Sons has no debt. Its current total value is $58 million. What will the company's value be if it sells $21 million in debt and has a tax rate of 34 percent? Assume debt proceeds are used to repurchase equity. A. $58,220,000 B. $60,370,000 C. $62,330,000 D. $64,560,000 E. $65,140,000 Glass Growers has no debt. Its cost of capital is 8.7 percent. Suppose the firm converts to a debt-equity ratio of 0.65. The interest rate on the debt is 6.9 percent. What is its new WACC? A. 7.99 percent B. 8.13 percent C. 8.36 percent D. 8.44 percent E. 8.61 percent Homework 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 | Exam 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 | Final Exam 1 2
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home |
Accounting & Finance | Business |
Computer Science | General Studies | Math | Sciences |
Civics Exam |
Everything
Else |
Help & Support |
Join/Cancel |
Contact Us |
Login / Log Out |