Question 1
1. Your aunt has $350,000 invested at 5.5%, and she now wants to retire. She wants to withdraw $45,000 at the beginning of each year, beginning immediately. She also wants to have $50,000 left to give you when she ceases to withdraw funds from the account. For how many years can she make the $45,000 withdrawals and still have $50,000 left in the end? 9.47 10.76 13.35 11.41 12.38 2. Suppose you inherited $870,000 and invested it at 8.25% per year. How much could you withdraw at the beginning of each of the next 20 years? $67,543.38 $76,715.94 $99,230.40 $83,386.89 $97,562.66 3. Last year Hamdi Corp. had sales of $500,000, operating costs of $450,000, and year-end assets of $355,000. The debt-to-total-assets ratio was 17%, the interest rate on the debt was 7.5%, and the firm's tax rate was 35%. The new CFO wants to see how the ROE would have been affected if the firm had used a 50% debt ratio. Assume that sales, operating costs, total assets, and the tax rate would not be affected, but the interest rate would rise to 8.0%. By how much would the ROE change in response to the change in the capital structure? 3.17% 3.42% 3.48% 3.08% 2.99% 4. Faldo Corp sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $435,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit Period = Days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments. 5.18 4.86 5.29 5.34 5.40 5. Suppose you inherited $630,000 and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years? $49,023.94 $65,365.26 $81,052.92 $79,745.61 $81,706.57 6. What's the present value of $1,675 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly? $1,440.49 $1,241.80 $1,179.71 $1,266.63 $1,279.05 7. Last year Ann Arbor Corp had $300,000 of assets, $305,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE? 5.34% 5.82% 6.59% 8.67% 6.93% 8. Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-assets ratio was 37.5%. Based on the DuPont equation, what was the ROE? 14.71% 12.16% 11.92% 11.43% 13.74% 9. Last year Ann Arbor Corp had $105,000 of assets, $305,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE? 19.81% 20.21% 16.84% 22.58% 24.17% 10. Your Aunt Ruth has $450,000 invested at 6.5%, and she plans to retire. She wants to withdraw $40,000 at the beginning of each year, starting immediately. How many years will it take to exhaust her funds, i.e., run the account down to zero? 13.82 15.11 23.03 15.29 18.43 11. Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. 11.10% 10.38% 12.14% 9.44% 11.83% 12. Your grandmother just died and left you $132,500 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account? $37,769.20 $39,221.86 $37,406.03 $33,774.38 $36,316.54 13. Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 23.50%, with interest paid monthly, what is the card's EFF%? 30.66% 26.20% 23.32% 22.80% 22.54% 14. Last year Ann Arbor Corp had $160,000 of assets, $305,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE? 13.00% 14.17% 11.31% 10.14% 15.73% 15. Your father's employer was just acquired, and he was given a severance payment of $397,500, which he invested at a 7.5% annual rate. He now plans to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of this year. How many years will it take to exhaust his funds, i.e., run the account down to zero? 27.19 24.55 26.13 21.38 26.40 16. Your father paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of each of the next 5 years, then an additional lump sum payment of $19,000 at the end of the 5th year. What is the expected rate of return on this investment? 20.26% 19.48% 19.67% 16.92% 20.46% 17. Your aunt has $760,000 invested at 5.5%, and she now wants to retire. She wants to withdraw $45,000 at the beginning of each year, beginning immediately. She also wants to have $50,000 left to give you when she ceases to withdraw funds from the account. For how many years can she make the $45,000 withdrawals and still have $50,000 left in the end? 41.13 39.50 40.72 39.10 45.61 18. Your girlfriend just won the Florida lottery. She has the choice of $14,600,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity? 3.74% 3.71% 4.53% 3.03% 3.44% 19. Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. 11.10% 10.38% 12.14% 9.44% 11.83% 20. Brookman Inc's latest EPS was $2.75, its book value per share was $22.75, it had 280,000 shares outstanding, and its debt ratio was 44%. How much debt was outstanding? $4,704,700 $5,355,350 $5,205,200 $4,054,050 $5,005,000,Great. Thank you. When do you expect to be finished? Thanks again!,Just a quick heads up, and then I will let you get back to it. I actually need the assignment in an hour. I put 11 PM on my original request because you guys are an hour behind us. So I actually need it by 10:30 PM your time (which would be 11:30 PM EST, my time). Thanks so much and sorry for the mix up.,Just a heads up, that I need the solutions in 25 minutes from now. Even if they aren't all finished. I need whatever you have by then. Thanks!,Seriously, I have eight minutes left. Please send me whatever you have and I will still pay you. I just need some answers. THanks!,I have a minute and half. Please send whatever you have done already!!!!,Thanks but you sent them too late. I had to turn my stuff in and I did horrible. I didn't have the answers in time.
Question 3
10-1 After ? tax cost of debt The Heuser Company?s currently outstanding bonds have a 10 percent coupon and a 12 percent yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35 percent, what is Heuser?s after ? tax cost of debt? 10-3 Cost of common equity Percy Motors has a target capital structure of 40 percent debt and 60 percent common equity, with no preferred stock. The yield to maturity on the company?s outstanding bonds is 9 percent, and its tax rate is 40 percent. Percy?s CEO estimates that the company?s WACC is 9.96 percent. What is Percy?s cost of common equity? 10-5 Projection selection Midwest Water Works estimates that its WACC is 10.5 percent. The company is considering the following capital budget projects: Project Size Rate of Return A $1 million 12.0% B 2 million 11.5 C 2 million 11.2 D 2 million 11.0 E 1 million 10.7 F 1 million 10.3 G 1 million 10.2 Assuming that each of these projects is just as risky as the firm?s existing assets, and the firm may accept all the projects or only some of them. Which set of projects should be accepted? EXPLAIN. 10-9 WACC The Patrick Company?s cost of common equity is 16 percent, its before-tax cost of debt 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate Patrick?s WACC. ASSETS Liabilities and Equity Cash $120 Accounts receivable 240 Inventories 360 Long Term Debt $1,152 Plant and Equipment, net 2,160 Common equity 1,728 Total assets $2,880 Total Liabilities and equity $2,880 11-1 NPV Project K cost $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its WACC is 12 percent. What is the project?s NPV? 11-7 Capital budgeting criteria A firm with 14 percent WACC is evaluating two projects for this year?s capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5 Project A -$6,000 $2,000 $2,000 $2,000 $2,000 $2,000 Project B -$18,000 $5,600 $5,600 $5,600 $5,600 $5,600 A) Calculate NPV, IRR, MIRR, payback, and discounted payback for each project. B) Assuming the projects are independent, which one or ones would you recommend? C) If the projects are mutually exclusive, which would you recommend?
