Question 1
1. The net present value always provides the correct decision provided that ____________ (Points : 1) Cash flow are constant over the asset?s life The required rate of return is greater than the internal rate of return Capital rationing is not imposed The internal rate of return is positive 2. Zellar?s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.?s required rate of return for these projects is 10%. The net present value for Project B is ________ (Points : 1) $18,097 $21,378 $34,238 $42,000 3. Your company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has an invoice price of $75,000, and it will cost $5,000 to modify the van to carry the company?s products. Cost savings from use of the new van are expected to be $ 22,000 per year for 5 years. At which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company?s statutory rate is 35%. Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one? (Points : 1) $18,850 $19,900 $21,305 $22,250 4. Your company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has an invoice price of $75,000, and it will cost $5,000 to modify the van to carry the company?s products. Cost savings from use of the new van are expected to be $ 22,000 per year for 5 years. At which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company?s statutory rate is 35%. Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the initial outlay required to fund this replacement project ? (Points : 1) $81,500 $78,500 $74,500 $71,000 5. Zellar?s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.?s required rate of return for these projects is 10%. The internal rate of return for Project A is ________ (Points : 1) 11.43% 13.87% 15.81% 17.45% 6. Zellar?s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.?s required rate of return for these projects is 10%. The profitability index for Project A is ________ (Points : 1) 1.47 1.22 1.13 1.08 7. Clinton Company is financed 40 percent by equity and 60 percent by debt. If the firm expects to earn $20 million in net income and retain 40% of it, how large can the capital budget be before common stock must be sold? (Points : 1) $8.0 million $12.0 million $20.0 million $50.0 million 8. Blue Jay Industries is considering the purchase of a new machine. It will replace an existing but obsolete machine that will be sold for $40,000. The existing machine is 8 years old, cost $150,000, had a 10 year useful life, and is being depreciated to zero using the straight line method. Blue Jay?s income tax rate is 40 %. What is the after tax salvage value of the old machine? (Points : 1) $6,000 $ 24,000 $36,000 $40,000 9. Jones Company has a target capital structure of 40% debt, 10% preferred stock, and 50% common equity. The company?s after tax cost of debt is 8%, its cost of preferred debt is 10%, its cost of retained earnings is 14%, and its cost of new common stock is 16%. The company stock has a beta of 1.2 and the company?s marginal tax rate is 35%. What is the company?s weighted average cost of capital if retained earnings are used to fund the common equity portion? (Points : 1) 11.20% 6.72% 16.80% 8.00% 10. Higgins Office Corp. Plans to maintain its optimal capital structure of 40 percent debt, 10 percent preferred stock, and 50 percent common equity indefinitely. The required return on each component source of capital is as follows: debt - 8 percent; preferred stock- 12 percent; common equity- 16 percent. Assuming a 40 percent marginal tax rate, what after tax rate of exchange must Higgins Office Corp. Earn on its investments if the value of the firm is to remain unchanged? (Points : 1) 12.40 percent 12.00 percent 11.12 percent 10.64 percent,How will I know that this is complete again? I forgot about this quiz and didn't have time to work through all the answers. I have many of them almost complete or complete and just unsure if the answers are correct.,My time stamp on this says 12-21-1020 at 12:25 am I need this completed by my time 1:00 am. Is this possible?,Sorry to be so inquisitive, I just wanted to make sure that I get the answers one time. Thanks,Since I have not received a response yet, does that mean that it is not possible to get his completed? Sorry again for so many questions. Thanks,Is anyone helping me? Can anyone help me? Thanks,Sorry, Thank you so much for answsering! Is it possible to get it in by my deadline? If not I will still pay for the work completed. I will try to submit late. Thank you so much for helping. I am lost in the last 3 chapters.,Just checking back in. Sorry again for being so inquisitive. It's late and I am affraid I am going to fall asleep and not get it submited in time. :) Sorry it's been a long day, as well as I am sure it has been for you also. So thank you for helping,I am confused? This is what I submitted?1. A corporate bond has a face value of $1,000 and a coupon rate of 6.5%. The bond matures in 10 years and has a current market price of $985. If the corporation sells more bonds it will incur flotation costs of $36 per bond. If the corporate tax rate is 34 %, what is the after tax cost of debt capital? (Points : 1) 5.71% 5.45% 5.18% 4.78% 2. The cost of new preferred stock is equal to ___________ (Points : 1) The preferred stock dividend divided by the market price The preferred stock dividend divided by its par value [1-tax rate] time the preferred stock dividend divided by net price Preferred stock dividend divided by the net selling price of preferred 3. Zellar?s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.?s required rate of return for these projects is 10%. The net present value for Project B is ________ (Points : 1) $18,097 $21,378 $34,238 $42,000 4. Jones Company has a target capital structure of 40% debt, 10% preferred stock, and 50% common equity. The company?s after tax cost of debt is 8%, its cost of preferred debt is 10%, its cost of retained earnings is 14%, and its cost of new common stock is 16%. The company stock has a beta of 1.2 and the company?s marginal tax rate is 35%. What is the company?s weighted average cost of capital if retained earnings are used to fund the common equity portion? (Points : 1) 11.20% 6.72% 16.80% 8.00% 5. Clinton Company is financed 40 percent by equity and 60 percent by debt. If the firm expects to earn $20 million in net income and retain 40% of it, how large can the capital budget be before common stock must be sold? (Points : 1) $8.0 million $12.0 million $20.0 million $50.0 million 6. Blue Jay Industries is considering the purchase of a new machine. It will replace an existing but obsolete machine that will be sold for $40,000. The existing machine is 8 years old, cost $150,000, had a 10 year useful life, and is being depreciated to zero using the straight line method. Blue Jay?s income tax rate is 40 %. What is the after tax salvage value of the old machine? (Points : 1) $6,000 $ 24,000 $36,000 $40,000 7. Zellar?s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs $ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.?s required rate of return for these projects is 10%. The internal rate of return for Project A is ________ (Points : 1) 11.43% 13.87% 15.81% 17.45% 8. The risk free rate of return is 3% and the market risk premium is 12%. Penn Trucking has a beta of 1.8 an a standard deviation of returns of 24 %. Penn Trucking?s marginal tax rate is 40%. Analyst expect Penn Trucking?s dividends to grow by 5% per year for the foreseeable future. Using the capital asset pricing model, what is Penn Trucking?s cost of retained earnings? (Points : 1) 17.4% 19.2% 24.6% 27.0% 9. Your company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has an invoice price of $75,000, and it will cost $5,000 to modify the van to carry the company?s products. Cost savings from use of the new van are expected to be $ 22,000 per year for 5 years. At which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company?s statutory rate is 35%. Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one? (Points : 1) $18,850 $19,900 $21,305 $22,250 10. The capital budgeting manager for XYZ Corporation, a very profitable high technology company, completed her analysis of Project A assuming 5 year depreciation. He accountant reviews the analysis and change the depreciation method to 3 year depreciation. This change will, ________ (Points : 1) Increase the present value of the net cash flow Decrease the present value of the net cash flow Have no effect on the net cash flow because depreciation is a non cash expense Only change the net cash flows if the useful life of the depreciable asset is greater than five years.
