Mastering WGU D325 – Networks

Preparing for WGU D325 and seeking WGU D325 tips or how to pass WGU D325? This comprehensive guide, informed by WGU D325 Reddit discussions and student insights, provides everything you need to succeed in Networks.

Course Description

WGU D325 – Networks builds on foundational networking knowledge, covering advanced topics like network design, configuration, and management. The course explores LAN/WAN technologies, routing protocols, and network performance optimization, essential for IT professionals aiming to manage enterprise networks. For more details, visit the official WGU program guide.

Useful Resources & Tips

Boost your preparation with these student-recommended resources:

  • DocMerit: Offers guides on network design, routing protocols (e.g., OSPF, BGP), and configuration.
  • Stuvia: Provides notes, practice questions, and configuration scenarios for D325.
  • Studocu: Access student-submitted network design plans and lab reports.
  • Quizlet: Flashcards on network topologies, protocols, and performance metrics.
  • YouTube: Search “WGU D325 Networks” for tutorials on configuring routers and switches.
  • WGU Cohorts: Join sessions for hands-on labs and network configuration practice.
  • Reddit: Explore r/WGU_CompSci for tips on mastering lab tasks and OA questions [Ref: web:23].

Pro tip: Use Cisco Packet Tracer or GNS3 for free practice with network configurations to reinforce concepts like VLAN setup and routing.

Mode of Assessment

WGU D325 is assessed through a combination of an Objective Assessment (OA) and Performance Assessment (PA). The OA tests knowledge of network design and protocols, while the PA involves lab-based tasks, such as configuring network devices or optimizing network performance.

Common Challenges

Based on Reddit and WGU forum feedback, students face these challenges:

  • Lab Configurations: Setting up complex network systems in virtual labs [Ref: web:23].
  • Protocol Knowledge: Memorizing routing protocols and network topologies.
  • Rubric Compliance: Meeting detailed PA requirements for lab submissions.
  • Time Management: Balancing lab practice with OA preparation.

How to Pass Easily

Follow these strategies to excel in WGU D325:

  1. Practice Network Configurations: Use Packet Tracer or GNS3 to simulate VLANs, routing, and switching.
  2. Memorize Key Terms: Use Quizlet to master protocols (e.g., OSPF, BGP) and topologies (e.g., star, mesh).
  3. Use Rubrics for PAs: Treat PA rubrics as checklists to ensure lab submissions meet all criteria.
  4. Review Studocu Examples: Study successful lab reports and configurations for structure and content.
  5. Join Cohorts: Attend WGU cohort sessions for hands-on lab guidance and feedback.
  6. Check Reddit: Search r/WGU_CompSci for tips on OA question types and lab strategies [Ref: web:23].
  7. Practice Time Management: Allocate specific times for lab practice and OA study to stay on track.

Conclusion

WGU D325 – Networks is a technical course that builds advanced skills for managing enterprise networks. By leveraging resources like DocMerit, Quizlet, Packet Tracer, and Reddit, and practicing with network tools, you can pass both the OA and PA with confidence. Stay focused, align with rubrics, and take pride in mastering network management for your IT career.

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Question 1

1.Universal Industries operates a division in Brazil, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries to facilitate reporting to corporate headquarters. However, the financial accounting reports from Brazil never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information. The reason for this is that the inventories have a different financial base because of the severe inflation. Required: How can process costing assist in addressing the problem facing Universal Industries? 2. The new cost analyst in your accounting department has just received a computer-generated report that contains the results of a simple regression program for cost estimation. The summary results of the report appear as follows: Variable Coefficient Standard Error t-Value Constant $35.92 $16.02 2.24 Independent variable $563.80 $205.40 2.74 r2 = 0.75 Required: a. What is the cost estimation equation according to the report? b. What is the goodness of fit? What does it tell about the estimating equation? 3. At Deutschland Electronics, product lines are charged for call center support costs based on sales revenue. Last year's summary of call center operations revealed the following: Surveillance Products Specialty Products Number of calls for information 1,000 4,000 Average call length for information 3 minutes 8 minutes Number of calls for warranties 300 1,200 Average call length for warranties 7 minutes 15 minutes Sales revenue $8,000,000 $5,000,000 Deutschland Electronics currently allocates call center support costs using a rate of 0.5% of sales revenue. Required: a. Compute the amount of call center support costs allocated to each product line under the current system. b. Assume Deutschland decides to use the average call length for information to assign last year's support costs. Does this allocation method seem more appropriate than percentage of sales? Why or why not? c. Assume Deutschland decides to use the numbers of calls for information and for warranties to assign last year's support costs of $65,000. Compute the amount of call center support costs assigned to each product line under this revised ABC system. d. Deutschland Electronics assigns bonuses based on departmental profits. How might the Specialty Products manager try to obtain higher profits for next year if support costs are assigned based on the average call length for information? e. Discuss the barriers for implementing ABC for this call center. 4.Universal Industries operates a division in Brazil, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries to facilitate reporting to corporate headquarters. However, the financial accounting reports from Brazil never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information. The reason for this is that the inventories have a different financial base because of the severe inflation. Required: How can process costing assist in addressing the problem facing Universal Industries?

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Question 2

1. Rocky, who was voted the most valuable player of NYU's basketball team, can: A) cannot delegate as they involved his personal skill. B) cannot delegate due to public policy. C) assign his duties to another player. D) delegate his duties to another player. 2. Which of the following statements is true for assignment of contracts? A) Rights cannot be sold in an assignment. B) The promisor must render all performance to the assignee. C) It represents the transfer of duties to assignees. D) The assignee is not entitled to the entire performance the assignor had a right to under the original contract. 3. Edward owes Frank $100, payable in six months. Frank, who is leaving the country on work, gives his rights to the payment to Marge for $80. Indicate the true statement about this case. A) Edward owes Marge $100. B) Frank will get $100 from Edward. C) Frank is the obligor. D) Edward owes Marge $80. 4. Zeta contracts to perform a violin solo for Pat. Zeta assigns the contract to Roy. Is this a valid delegation of duty? A) There is no valid delegation of Zeta's duty to play because all delegations must be expressly stated in the assignment contract. B) There is a valid delegation of Zeta's duty because Zeta does not want to play for Pat. C) There is no valid delegation of Zeta's duty to play because the contract is one in which Zeta's personal skill as a musician is an essential part of the agreement. D) There is a valid delegation of Zeta's duty as Zeta has entered into a novation with Roy. 5. If the promisor's performance will satisfy a legal duty that the promisee owes a third party, the third party is a(n): A) creditor beneficiary. B) incidental beneficiary. C) implied beneficiary. D) donee beneficiary. 6. Creditor beneficiaries can: A) sue only for payment of money. B) sue only the promisor. C) sue both the promisor and promisee. D) sue in breach of insurance contracts. 7. An assignor who assigns the contract will be relieved of the duty to perform to the other party on the original contract when: A) the contract of assignment explicitly states that the assignor is no longer liable to the other party. B) the assignee contracts to successfully perform the duties. C) the assignee gives notice to the other party. D) there has been a novation of the original contract. 8. The term delegation refers to the transfer of: A) duties involving the promisor's personal skills. B) rights. C) duties that a promisor did not want to perform. D) duties. 9. Unless an assignment agreement clearly indicates a contrary intent, courts today tend to interpret assignments as including a delegation of the assignor's duties. A promise on the part of the assignee to perform these duties: A) depends on the policy followed by the public. B) is not implicit. C) is enforceable by either the promisor or the assignor. D) is not enforceable by the assignor. 10. Transfer of rights is referred to as a(n): A) delegation. B) third-party contract. C) novation. D) assignment. 11. The promisor who delegates duties is ______ to the promisee if the party to whom the duties were delegated fails to satisfactorily perform them. A) liable to the assignee and not B) not liable C) liable D) liable for novation 12. Assignees: A) can sue the promisor for nonperformance. B) cannot enforce any rights of assignor against obligator. C) cannot be liable for duties impliedly delegated with the assignment. D) can acquire greater rights than the assignor has. 13. Which of the following implied guarantee is made by assignors who are paid for making an assignment? A) The assignor has good title to the rights assigned. B) The assignor can enhance the value of the assignment. C) Any written or oral statement representing the claim is genuine. D) The contract has been discharged two months prior to assignment. 14. Carl is a doting father who wants to reward his son, Matt for graduating from college. Carl contracts with a local auto dealer to provide Matt with a new BMW. Under the contract, Carl promises to pay the dealer in exchange for the dealer's promise to deliver the car to Matt. The dealer then backs out of the deal and Matt wants to sue him. In this case: A) Matt is a donee beneficiary of the contract and can enforce it against the dealer. B) Matt cannot enforce the contract against the dealer because Carl's promise was gratuitous and therefore unenforceable. C) Matt is a creditor beneficiary of the contract and can enforce it against the dealer. D) Matt is an incidental beneficiary of the contract and cannot enforce it against the dealer. 15. In the will, Lydia's mother has named Lydia as the owner of her farm and named her as a beneficiary in her insurance policy. Lydia is: A) a donee beneficiary. B) the assignee by novation. C) a creditor beneficiary. D) an incidental beneficiary. 16. Delegations can be prohibited by: A) the Restatement of Contracts. B) public policy. C) the UCC. D) involvement of personal rights. 17. The municipality of College Town enters into a contract with Streetz to have the town's roads repaired. Katie is a resident of College Town and is considered a(n): A) implied beneficiary. B) incidental beneficiary. C) creditor beneficiary. D) donee beneficiary. 18. X, a builder, contracts with the city of Y to build a new convention center. Z, a hotel owner, stands to benefit once the convention center is built, so Z is angry when X backs out of the contract. Z wants to sue X. Can Z sue X? A) Z is a creditor beneficiary and can sue X. B) Z is an incidental beneficiary and cannot sue X. C) Z can sue X because Z is a citizen of Y, with whom X contracted. D) Z is a donee beneficiary and can sue X. 19. A donee beneficiary: A) is a third-party beneficiary who incidentally benefits from a contract. B) is a third-party beneficiary to whom a gift of performance is given. C) is a third party beneficiary who cannot recover the value of the promised performance. D) is a third-party beneficiary who is no longer a part of an agreement.

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Question 3

Final Exam Question Pool - Spring 2012 1) What are the expected return, standard deviation, and beta of a portfolio comprised of $1,500 invested in stock A, $4,500 in stock B and $4,000 in stock C in the below economy? The risk-free rate and the market riskpremium are 4% and 6%, respectively. State of Probability of Returns if State Occurs Economy State of Economy Stock A Stock B Stock C Boom 15% 21% 12% 16% Normal 80% 11% 9% 12% Recession 5% -18% 2% -22% 2) There are two stocks in the market, stock A and B. The price of stock A today is $50. The price of stock A next year will be $40 if the economy is in a recession, $55 if the economy is normal, and $60 if the economy is expanding. The probabilities of recession, normal times, and expansion are 0.1, 0.8, and 0.1, respectively. Stock A pays no dividends and has a correlation coefficient of 0.8 with the market portfolio. Stock B has an expected return of 9%, a standard deviation of 12%, a correlation coefficient with the market portfolio of 0.2, and a correlation coefficient with stock A of 0.6. The market portfolio has a standard deviation of 10%. a. If you are a typical investor with a well-diversified portfolio, which stock would you prefer? Why? b. What are the expected return, standard deviation, and beta of a portfolio made up of 70% A and 30% B? 3) The characteristics of stock A and B, which are the only investable assets in any economy, are given as follows: Stock Expected Return Standard Deviation A 10% 5% B 15% 10% Correlation Coefficient (A,B) = -1 Suppose that it is possible to lend and borrow at the risk-free rate. What must be the value of the risk-free rate? Hint: Any asset without risk should earn the risk-free rate of return. 4) FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40 percent debt. Currently, there are 5,800 shares outstanding and the price per share is $66. EBIT is expected to remain at $21,998 per year forever. The interest rate on new debt is 11 percent, and there are no taxes. a. Melanie, a shareholder of the firm, owns 250 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? b. What will Melanie?s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 250 of her shares. c. Suppose FCOJ does convert, but Melanie prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital structure. 5) Consider a project to produce solar water heaters. It requires a $10,000,000 investment and offers a level after-tax cash flow of $1,690,000 per year for 10 years. The opportunity cost of capital is 11.25%, which reflects the project?s business risk. a. Suppose the project is financed with $7,000,000 of debt and $3,000,000 of equity. The interest rate is 7.25% and the marginal tax rate is 34%. The debt will be paid off in equal annual installments over the project?s 10-year life. Calculate the project?s APV. b. If the firm incurs issue costs of $500,000 to raise the $3,000,000 of required equity. Calculate the project?s APV. 6) Digital Organics will invest $0.90 million and expects after-tax returns of $500,000 in the next two years. The project will last for two years only. The appropriate cost of capital is 12% with all-equity financing, the borrowing rate is 8%, and DO will borrow $200,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $0.30 per dollar of interest paid. Calculate the project?s APV. 7) Sultan?s Kitchen offers authentic Ottoman and Turkish cuisine in Manhattan. The company has been very profitable and the owners are planning to expand to four major metropolitan areas, including Boston, Chicago, Los Angeles, and Dallas. The following BOOK-VALUE balance sheet is given for Sultan?s Kitchen. Book Value Balance Sheet (in thousand $) Assets Liabilities ____________________________________________________________________________________ Cash & Short-Term Securities 3,000 Bonds 20,000 (8% annual coupon, 10yr, Face Value: 1000, Market Value: 877.108) (# of bonds outstanding: 20) Accounts Receivable 4,000 Preferred Stock 2,000 (# of shrs outstanding: 200) Restaurants & Equipment 35,000 Common Stock 1,000 (# of shrs outstanding: 1000) Additional Paid-in Capital 9,000 Retained Earnings 10,000 The expansion is going to require an initial investment of $50 million and it will increase after-tax cash flows by $10 million for the next 10 years. The preferred stock of the company is trading at $16/share and pays an annual dividend of $1.2. The common stock sells for $20/share. The 3-month T-Bill rate is 4% and the rate of return on the S&P 500 index is 12%. The company has an equity-beta of 1.5. The corporate tax rate is 40%. a. What is the WACC of Sultan?s Kitchen? b. Should Sultan?s Kitchen expand its business? Support your answer with appropriate calculations. c. Sultan?s Kitchen is evaluating a pilot project at its original Manhattan location. Under consideration is the idea of purchasing the adjacent store and turning it into an adjoint kindergarten/recreational area where the restaurant is to offer child care services for restaurant patrons? kids. An initial study reveals that the existing kindergartens in Manhattan are all-equity financed with betas of 0.5. The project needs an initial investment of $800,000 but it will add $125,000 to annual after-tax cash flows for the next 10 years. Should Sultan?s Kitchen offer child-care services to its customers? 8) Frodo, Inc. is an all-equity firm with 1,000 shares of common stock outstanding. Investors require a 20 percent return on Frodo?s unlevered equity (equivalently RA). The company distributes all of its earnings to equity holders as dividends at the end of each year. Frodo estimates that its annual earnings before interest and taxes (EBIT) will be $1,000, $2,000, or $4,200 with probabilities of 0.1, 0.4, and 0.5, respectively. The firm?s expectations about earnings will be unchanged in perpetuity. There are no corporate or personal taxes. a.What is the value of the firm? b. Suppose Frodo issues $7,500 of debt at an interest rate of 10 percent and uses the proceeds to repurchase 500 shares of common stock. 1.What is the new value of the firm? 2.What is the new value of the firm?s equity? 3. What is the required return on the firm?s levered equity? 4.What is the firm?s weighted average cost of capital? c. Suppose that Frodo?s earnings are subject to a corporate tax rate of 40 percent. 1.Will the presence of corporate taxes increase or decrease the value of the firm? Why? 2.What is the value of the firm? 9) The Holland Company expects perpetual earnings before interest and taxes (EBIT) of $4 million per year. The firm?s after-tax, all-equity discount rate (equivalently RA) is 15 percent. Holland is subject to a corporate tax rate of 35 percent. The pretax cost of the firm?s debt capital is 10 percent per annum, and the firm has $10 million of debt in its capital structure. a. What is Holland?s value? b. What is Holland?s cost of equity (RE)? c. What is Holland?s weighted average cost of capital (RWACC)? 10) Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm?s debt-to-equity ratio is expected to rise from 40 percent to 50 percent. The firm currently has $7.5 million worth of debt outstanding. The cost of this debt is 10%. Locomotive expects to earn $3.75 million per year in perpetuity. Locomotive pays no taxes. a. What is the market value of Locomotive Corporation before and after the repurchase announcement? b. What is the expected return on the firm?s equity (rE) before the announcement of the stock repurchase plan? c. What is the expected return of equity of an otherwise identical all-equity firm (rA)? d. What is the expected return on the firm?s equity (rE) after the announcement of the stock repurchase plan? 11) Clarix Inc. is a publicly traded company that operates in two businesses ? it generates 60% of its value from entertainment and 40% from electronics. The company has 100 million shares trading at $ 8/share, has $ 400 million (market and book value) in interest bearing debt and lease commitments of $ 80 million each year for the next 6 years. The current levered beta for the firm is 1.15 and the current bond rating for the firm is BBB, which corresponds to a default spread of 1.5% (Default spread is the premium over the risk-free rate to compensate for default risk of the firm). The US-treasury bill rate is 3.5%, the market risk premium is 5% and the marginal tax rate is 40%. a. Estimate the current cost of capital for the firm b. Now assume that the firm plans to sell its electronics business at fair value and use 75% the proceeds to pay a special dividend to equity investors and 25% of the proceeds to retire interest bearing debt. If the unlevered beta of the electronics business is 0.90 and this transaction will lower the rating to BB (with a default spread of 3%), estimate the cost of capital after the transaction. 12) Prolox Inc. is a pharmaceutical company with 100 million shares trading at $10/share and debt outstanding of $ 250 million. The firm has a levered beta of 1.00 and a pre-tax cost of debt of 4.5%. The risk-free rate is 3.5%, the marginal tax rate is 40% and the cost of equity is 8.5%. a. Estimate the current cost of capital for the firm. b. Now assume that the firm plans to borrow $ 500 million and buy back stock. If this will triple the default spread on the debt (both new and existing), estimate the new cost of capital for the firm after the recapitalization (Default spread is the premium over the risk-free rate to compensate for default risk of the firm). c. Now assume that the firm does buy back stock with the $ 500 million at a purchase price of $ 11/share. Estimate the value per share for the remaining shareholders in the company. (You can assume no growth in perpetuity) 13) CIQ Inc. is a company that provides information services to financial service companies. The company currently has 150 million shares, trading at $ 10 a share, and $ 500 million in debt (book and market). The firm currently has a beta (levered) of 1.20 and a pre-tax cost of debt of 6%; the marginal tax rate is 40%; the risk free rate is 4% and the market risk premium is 5%. The firm is considering borrowing $ 500 million and buying back stock; it believes that doing so will lower its cost of capital to 8%. (You can assume no growth in the savings in perpetuity) a. Assuming that the firm can buy back stock at $10.25/share, estimate the increase in value per share for the remaining shares. b. Now assume that you do not know what the price per share will be on the stock buyback. How much would the price per share on the buyback have to be for the value per share on the remaining shares to remain unchanged at $10/share? 14) You have been asked by Med Parts Inc., a medical device maker, for advice on whether they are using the right mix of debt and equity to fund their operations. The firm has 120 million shares trading at $ 10 a share and $ 300 million in outstanding debt. The current levered beta for the firm is 1.10 and the pre-tax cost of borrowing is 6%. The marginal tax rate is 40%, the risk-free rate is 5% and the equity risk premium is 4%. a. Estimate the current cost of capital for the firm. b. If the market is valuing the firm correctly today and the expected free cash flow to the firm next year is $ 80 million, estimate the implied growth rate in this cash flow in perpetuity (given the cost of capital that you estimated in part a. c. You estimate the optimal debt ratio for the firm to be 40% and believe that the cost of capital will drop to 8%, if you move to the optimal by borrowing money and buying back shares. If you buy back the shares at $10.25/share, estimate the increase in value per share for the remaining shares. 15) A computer costs $500,000 and is depreciated straight-line over 5 years to a salvage value of zero. The user wishes to lease the computer by making 6 annual lease payments, the first of which is due immediately. If taxes are paid without delay and the rate of interest is 10%, what is the minimum acceptable lease payment for a lessor who pays tax at 35%? 16) Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $8,100 to buy and would be depreciated using the straight-line method to zero salvage over 9 years. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What is the NPV of the lease? 17) The current price of Tremblant?s stock is $108. During each six-month period it will either rise by 11.90% or fall by 10.80%. The interest rate is 5% per six-month period. a. Calculate the value of a one-year European put option on Mont Tremblant?s stock with an exercise price of $112.00. b. Calculate the value of a one-year American put option on Mont Tremblant?s stock with an exercise price of $112.00. 18) A stock is currently selling for $46. Over the next two periods, the stock will either move up by 35% or down by 21%. If the risk-free rate of interest is 3.2 percent per period, what is the value of a call option with a strike price of $62? 19) In January 2009, a one-year call on the stock of Amazon.com, with an exercise price of $53, sold for $27.55. The stock price was $63. The risk-free interest rate was 4.50%. (Note: Amazon does not pay a dividend.) Assume that the Amazon options are European options. How much would you be willing to pay for a put on Amazon stock with the same maturity and exercise price? 20) A condor is a strategy that involves four options with the same expiration date, all with different strike prices. A long condor position involves buying a call with a low strike price X1, selling a call with a somewhat higher strike price X2, selling another call with yet a higher strike price X3, and buying a call with the highest strike price X4. (X1 < X2 < X3 < X4). Write the payoff schedule and draw the payoff & profit diagrams of a condor and discuss when you would use such a position. 21) A butterfly spread involves buying a call option with exercise price X1, another call option with exercise price X3 and selling two calls with exercise price X2, where X2=(X1+X3)/2 and X1 Interest Coverage Ratio <= Spread over T-bond AAA 9.65 ? 0.30% AA 6.85 9.35 0.70% A+ 5.65 6.849999 1.00% A 4.49 5.649999 1.25% A- 3.29 4.4899999 1.50% BBB 2.76 3.2899999 2.00% BB 2.17 2.7599999 2.50% B+ 1.87 2.1699999 3.00% B 1.57 1.8699999 4.00% B- 1.27 1.5699999 5.00% CCC 0.87 1.2699999 6.00% CC 0.67 0.8699999 7.50% C 0.25 0.6699999 9.00% D -100000 0.2499999 12.00% The treasury bill rate is 3.00% and the treasury bond rate is 6.25%. a. What is the current cost of equity? b. What is your best estimate of the current after-tax cost of debt? (The company is not rated currently) c. What is the current cost of capital? Boston Turkey is contemplating borrowing $500,000 to repurchase stock. If it does so, its rating will drop to A-. a. If it does so, what will the new cost of equity be? b. How much will the stock price change if it borrows $500,000 and buys back stock? Assets Liabilities Property, Plant & Equipment $ 1,500,000 Accounts Payable $ 500,000 Land & Buildings $ 500,000 Long Term Debt $ 1,000,000 Current Assets $ 1,000,000 Equity $ 1,500,000 Total $ 3,000,000 Total $ 3,000,000 31) VRC Inc., a privately-owned business in several business lines, wants to estimate a cost of equity for itself as a business. The company provides you with the following information on the businesses it operates in, the operating income it has in each business and the betas of comparable firms in each business line. Business Line Operating Income Comparable Firms Beta D/E Ratio Technology $ 50 million 1.60 10% Auto Parts $ 40 million 1.20 30% Financial Services $ 60 million 1.15 100% Assuming that the tax rate for all firms is 40%, that the operating income is proportional to divisional value and that VRC has a debt to capital ratio of 40%, estimate the equity beta for VRC. 32) You have been asked to assess the cost of equity for Transverse International, a publicly traded firm that operates in the entertainment and travel businesses. You have collected the following information on the value generated by Transverse in each of the businesses and relevant sector information: Business Estimated Value Averages for the Sector Regression beta Unlevered Beta Entertainment $ 1.5 billion 1.50 1.20 Travel $ 1 billion 2.00 0.80 Transverse has a book value for equity of $ 500 million and a book value of debt of $ 500 million as well; the latter is also the market value for debt. The effective tax rate is 30% and the marginal tax rate is 40%. a. Estimate the unlevered beta for Transverse International. b. Estimate the levered beta for Transverse International. c. Assume that Transverse plans to borrow $ 1 billion to use for two purposes: $ 500 million will be used to buy back stock and $ 500 million to expand the travel business. Estimate the levered beta after the transaction. 33) PetSmart Inc. is a publicly traded company involved in selling pet food and accessories. The firm has 15 million shares outstanding, trading at $ 10 a share; it has $ 50 million in 10-year bonds outstanding and interest expenses on the debt amounted to $ 2 million. The firm currently is rated A with a cost of debt of 5% and has a levered beta of 1.56. The risk-free rate is 4.5% and the market risk premium is 4%. The corporate marginal tax rate is 40%. a. Estimate the current cost of capital for PetSmart. b. PetSmart announces that it will be borrowing $ 50 million and buying back stock at $10.75 a share. This will lower the rating to BB, with a pre-tax cost of debt of 7%. Assuming that all of the existing debt gets refinanced at this new rate, estimate the value per share after this transaction. (You can assume a growth rate of 3% in perpetuity.) 34) Information on Janicek Power Co., is shown below. What is the firm?s WACC if the tax rate is 34%? ? Debt: 9,600 units of 9.1 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 98.5 percent of par; the bonds make semiannual payments. ? Common stock: 221,000 shares outstanding, selling for $84.1 per share; beta is 1.26. ? Preferred stock: 13,100 shares of 5.80 percent preferred stock outstanding, currently selling for $96.9 per share. ? Market: 7.05 percent market risk premium and 4.85 percent risk-free rate. 35) Quartz Corporation is a relatively new firm. Quartz has experienced enough losses during its early years to provide it with at least eight years of tax loss carry-forwards. Thus, Quartz?s effective tax rate is zero. Quartz plans to lease equipment from New Leasing Company. The term of the lease is five years. The purchase cost of the equipment is $764,000 and will be depreciated to a salvage value of zero. New Leasing Company is in the 30 percent tax bracket. There are no transaction costs to the lease. Each firm can borrow at 4 percent. a. Is a lease possible between these two parties? b. If so, what would be the most fair lease payment? 36) Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt?equity ratio of .38, but the industry target debt?equity ratio is .28 The industry average beta is 1.5. The market risk premium is 5 percent, and the risk-free rate is 5.7 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 35 percent. The project requires an initial outlay of $460,000 and is expected to result in a $88,000 cash inflow at the end of the first year. The project will be financed at Blue Angel?s target debt?equity ratio. Annual cash flows from the project will grow at a constant rate of 6.7 percent until the end of the fifth year and remain constant forever thereafter. Should Blue Angel invest in the project? 37) Neon Corporation?s stock returns have a covariance with the market portfolio of .041. The standard deviation of the returns on the market portfolio is 19 percent, and the expected market risk premium is 7.4 percent. The company has bonds outstanding with a total market value of $38 million and a yield to maturity of 11 percent. The company also has 4 million shares of common stock outstanding, each selling for $20. The company?s CEO considers the firm?s current debt?equity ratio optimal. The corporate tax rate is 37 percent, and Treasury bills currently yield 4.2 percent. The company is considering the purchase of additional equipment that would cost $47 million. The expected unlevered cash flows from the equipment are $15 million per year for five years. Purchasing the equipment will not change the risk level of the firm. Should Neon purchase the equipment? 38) Wolfson Corporation has decided to purchase a new machine that costs $4.9 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 40 percent. The Sur Bank has offered Wolfson a four-year loan for $4.9 million. The repayment schedule is four yearly principal repayments of $1,225,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1.42 million per year are due at the beginning of each of the four years of the lease. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it? 39) Andersen Enterprises manufactures window furnishings and also builds new houses; the window furnishings business accounted for 40% of the total revenues of $ 1 billion in the most recent year. The firm is publicly traded and has 15 million shares outstanding, trading at $ 40 a share and the market value of debt outstanding is $ 400 million. The company is rated BBB, and the typical default spread for BBB rated bonds is 1.8% over the riskless rate. You have obtained the unlevered betas and average firm value/sales ratios for the two businesses that Andersen operates in below by looking at comparable firms: Business Unlevered beta Firm Value/Sales Ratio House furnishing 1.30 1.6 Construction services 0.90 0.6 Andersen?s tax rate is 40%. The riskless rate is 5% and the market risk premium is 4%. a. Estimate the levered beta for Andersen. b. Estimate the cost of capital for Andersen. c. Now assume that Andersen is considering a plan to borrow $ 200 million and expand its construction business. Assuming that this plan goes through, estimate the new levered beta for Andersen. 40) You have been asked to assess the cost of capital for Mylar Telecommunications, a firm that has recently gone through financial turmoil. The firm has 100 million shares outstanding, trading at $ 10 per share, and about $ 9 billion in debt (in market value terms). The company is in two businesses ? telecommunications equipment and internet services. You have collected the following information on the businesses: Business Estimated Value Unlevered beta from comparables Telecomm Equipment $ 6 billion 0.90 Internet Services $ 4 billion 1.40 The average coupon rate on the debt is 10% but the firm has been downgraded to a CC rating, and CC rated bonds trade at a default spread of 12% over the treasury bond rate (which is currently 5%). The firm has been steadily losing money and has accumulated net operating losses of more than $ 4 billion; the firm does not expect to pay taxes for the next 4 years. (The market risk premium is 4% and the marginal tax rate for all firms is 40%) a. Estimate the levered beta for Mylar for next year. b. Estimate the cost of capital for Mylar for the next year. c. Now assume that Mylar could sell half of its internet business for fair market value ($2 billion) and use the cash to pay off debt. Estimate the new levered beta of the firm. 41) Novacell Inc. is a manufacturer of solar panels that is considering moving from its existing policy of not borrowing money. The firm has 4 million shares outstanding, trading at $ 25 a share, no cash holdings and a beta of 1.20. The risk-free rate is 5%, the equity risk premium is 4% and the corporate tax rate is 40%. a. Estimate the current cost of capital for the firm. b. Assume that the firm can borrow $ 25 million at a pre-tax rate of 7% and buy back shares.. Assuming that the firm is growing 3% a year in perpetuity and that investors are rational, estimate the change in value per share after the buyback. c. Assume that instead of buying back shares, the firm had borrowed $25 million and invested the money in expanding its existing business. If the expansion has a net present value of $ 5 million, estimate the change in value per share after the transaction. 42) You have been asked to estimate the cost of capital for Simtel Enterprises, a firm with operations in different businesses. You are given the breakdown of the three businesses that Simtel is in below: Business Estimated Value Average Unlevered beta: Comparables Telecomm Services $ 2.0 billion 1.00 Computer Software $ 1.0 billion 1.25 Real Estate Management $ 1.0 billion 0.60 Simtel has 100 million shares outstanding, trading at $ 20 a shares; its remaining capital is in the form of corporate bonds with a BB rating, carrying a default spread of 4% over the risk-free rate. Simtel?s marginal tax rate is 40%. The long term treasury bond rate is 6% and the market risk premium is 4%. a. Estimate the cost of capital for Simtel. b. Now assume that Simtel sells its real estate services division at its estimated value and uses the funds to retire debt. This will cause its rating to rise to A and the default spread on its bonds to drop to 1.5%. Estimate the new cost of capital for Simtel. 43) Jackson-Presley Inc. produces and sells musical CDs and cassettes and it is also involved in promoting concerts. The company?s financial statements for the last two years are given below. Last Year Current Year Revenues $ 100 million $150 million - Cost of Goods Sold $ 40 million $ 60 million - Depreciation & Amortization $ 10 million $ 13 million Earnings before interest and taxes $ 50 million $ 85 million Interest Expenses $ 0 $ 5 million Taxable Income $ 50 million $ 80 million Taxes $ 20 million $ 32 million Net Income $ 30 million $ 48 million Assets Liabilities Property, Plant & Equipment $ 100 million Current Liabilities $ 20 million Land and Buildings $ 50 million Debt $ 60 million Current Assets $ 50 million Equity $120 million Total $ 200 million Total $200 million Jackson-Presley's stock has been listed on the NASDAQ for the last two years and is trading at twice the book value (of equity). There are 12 million shares outstanding. Jackson-Presley derives 75% of its total market value from its record/CD business and 25% from the concert business. While the price data on the company is insufficient to estimate a beta, the betas of comparable firms in these businesses is as follows ? Business Average Beta Average D/E Ratio Record/CD Business 1.15 50.00% Concert Business 1.20 10.00% You can assume that these companies have 40% tax rates. The debt is composed of ten-year bonds, and is rated A (Typical A rated bonds are yielding 10% currently in the market). The current treasury bond rate is 8.00%. a. Estimate the market value of the debt. b. Estimate the current cost of equity. c. Estimate the current weighted average cost of capital. 44) Loman Enterprises is a public traded company, with 60 million shares outstanding, trading at $10/share and $ 400 million in debt outstanding (book and market value). The firm currently has a pre-tax cost of debt of 8% and a cost of capital of 9.72%. The risk-free rate is 3%, the equity risk premium is 5% and the marginal tax rate is 40%. Shaken by the financial crisis, the firm is planning on issuing new shares and retiring all of its debt. If it does so, what will its cost of capital be after the transaction? 45) Beltran Enterprises is a publicly traded transportation firm with 80 million shares outstanding, trading at $25 a share and $ 500 million in debt. The firm has $120 million in operating income (EBIT), its current cost of equity is 10% and its current rating is A (with a default spread of 2% over the risk-free rate). The current riskfree rate is 4%, the marginal tax rate is 40% and the equity risk premium is 5%. a. Estimate the current cost of capital for the firm. b. Now assume that the firm is considering tripling its dollar debt and buying back stock. If this action will lower the bond rating to B and increase the default spread to 6%, estimate the interest expenses at the new debt level and the tax rate to use to compute the after-tax cost of debt. c. If the firm does triple its dollar debt and buys back stock, estimate the new cost of capital for the firm. 46) Delgado Enterprises is an auto parts company that has accumulated considerable debt. The firm has 50 million shares, trading at $ 8 a share, and $ 600 million in debt outstanding (in market value terms). The current levered beta for the firm is 2.28 and the firm has a BB rating, with a default spread of 6% over the risk-free rate. The risk-free rate is 4% and the equity risk premium is 6%. The marginal tax rate is 40%. a. Estimate the current cost of capital for the firm. b. Now assume that the firm is considering issuing equity, with the intent of halving its debt to capital ratio. If this action will improve the rating of the firm to A, with a default spread of 2.5% over the risk free rate, estimate the new cost of capital for the firm. 47) You are assessing the optimal capital structure for Totem Holdings, a large publicly traded chemical company with 100 million shares trading at $ 30 per share and $ 1 billion in debt outstanding. The firm currently has a pre-tax cost of debt of 6% and you have correctly estimated the current cost of capital to be 9%. The firm is planning to borrow an additional $ 2 billion (which will push up the pre-tax cost of debt to 7%) and use the proceeds to buy back $ 1 billion in stock and invest $1 billion in its existing business. The firm?s tax rate is 40%, the current risk-free rate is 5% and the market risk premium is 4%. a. Estimate the new cost of equity for this firm after the transaction. b. Estimate the new cost of capital after the transaction. c. Estimate the change in the value per share if the firm moves to its optimal by buying back shares at $ 33 per share. (You can ignore the NPV of the investment in the existing business) 48) Seger, Inc., is an unlevered firm with expected annual earnings before taxes of $34 million in perpetuity. The current required return on the firm?s equity is 10 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.7 million shares of common stock outstanding and is subject to a corporate tax rate of 45 percent. The firm is planning a recapitalization under which it will issue $37 million of perpetual 8 percent debt and use the proceeds to buy back shares. a. Calculate the value of the company before the recapitalization plan is announced. What is the value of equity before the announcement? What is the price per share? b. Use the APV method to calculate the company value after the recapitalization plan is announced. What is the value of equity after the announcement? What is the price per share? c. Use the flow to equity method to calculate the value of the company?s equity after the recapitalization. 49) Liberty Media is a telecom company that is coming off several years of a borrowing binge. The firm currently has $ 800 million in debt outstanding, 10 million shares trading at $ 20 a share and faces a cost of capital of 12%. The firm is considering issuing $ 300 million of new equity and repaying debt and believes that doing so will lower the cost of capital to 10%. The firm?s operations are in stable growth, growing at 4% a year. a. Estimate the increase in firm value from this transaction. b. Assuming that Liberty Media issued 20 million shares, in a private placement, to raise the $ 300 million (to retire debt), estimate the value of equity per share after the transaction. 50) SDL is a firm manufacturing perfumes and other cosmetics and it sells its products worldwide. The f

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Question 4

3. (Points: 1) Determine if each of the following should be recorded as an asset (capital expenditure) or as an expense (revenue expenditure). Matching pairs cost to have store windows washed cost to have store windows removed and replaced with more energy-efficient, double-paned windows cost of adding new wing to factory building cost of routine maintenance on factory truck cost to overhaul engine on factory truck; this overhaul is expected to extend life of truck Save Answer 4. (Points: 1) A bank reconciliation should be prepared a. whenever the bank refuses to make a loan to a company. b. when an employee is suspected of fraud. c. by the same person who is authorized to sign company checks. d. to explain any difference between the depositor's cash balance and the bank balance. e. none of the above Save Answer 5. (Points: 1) If a check correctly written for $43 is incorrectly recorded on the company's books as $48, the bank reconciliation should show a. an addition to the bank balance of $5. b. a deduction from the bank balance of $5. c. an addition to the book balance of $5. d. a deduction from the book balance of $5. e. none of the above Save Answer 6. (Points: 1) Brazos Supply Company just received the monthly bank statement from its bank. The bank statements shows an ending cash balance of $45,000. Additional information pertaining to the bank account: outstanding checks total $20,000 deposit in transit amounts to $5,000 bank service charges are $35 NSF check returned with the bank statement amounts to $250 ending Cash balance per company books, $?? What is the company's actual or true cash balance at the end of the month? a. $25,000 b. $30,000 c. $29,715 d. $29,750 e. none of the above Save Answer 7. (Points: 1) Refer to the information for Brazos Supply Company above. How should outstanding checks be treated in the bank reconciliation? a. deducted from balance per books b. added to balance per books c. deducted from balance per bank d. added to balance per bank e. none of the above Save Answer 8. (Points: 1) Refer to the information above for Brazos Supply Company. Which of the following reconciliation items would require a journal entry by Brazos Supply? a. outstanding checks and deposits in transit b. NSF check and deposits in transit c. outstanding checks and bank service charges d. bank services charges and NSF check e. all of the above Save Answer 9. (Points: 1) Refer to the information above for Brazos Supply Company. What was the cash balance in the company's accounting records before the company began the bank reconciliation? a. $30,285 b. $30,250 c. $45,250 d. $25,285 e. none of the above Save Answer 10. (Points: 1) Bad debts expense is considered a. an avoidable cost in doing business on a credit basis. b. a weakness in management policies. c. a necessary risk of doing business on a credit basis. d. avoidable unless there is an economic recession.,homework is due at 1:30 any way you can finish it by then?

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Question 5

This is my mid-term exam... 16. Coefficient of determination is the percentage of the variation in the ____________variable that results from the _________ variable. 17. In exponential smoothing, the closer alpha is to ___________, the greater the reaction to the most recent demand. 18. __________is the category of statistical techniques that uses historical data to predict future behavior. 19. ___________is absolute error as a percentage of demand. 20. ________methods are the common type of forecasting method for the long-term strategic planning process. 21. __________is the difference between the forecast and actual demand. 22. _________is a measure of the strength of the relationship berween independent and dependent variables. 23. A fair die is rolled 8 times. What is the probability than an even number (2,4,6) will occur between 2 and 4 times? Round your answer to four places after the decimal. 24. A loaf of bread is normally distributed with a mean of 22 oz and a standard deviation of 0.5 oz. What is the probabilty that a loaf is larger than 21oz? Round your answer to four places after the decimal. 25. Daily highs in Sacramento for the past week (from the least to most recent) were 95, 102, 101, 96, 95, 90, and 92. Develop a forcast for today using a weighted moving average, with weights of .6, .3, and .1, where the highest weights are applied to the recent data. 26. Daily highs in Sacramento for the past week (from least to most recent) were 95, 102, 101, 96, 95, 90, and 92. Develop a forcast for today using a 2 day moving average. 27.