1) Due to a number of lawsuits related to toxic wastes, a major chemical company has recently experienced a market revaluation. The firm has bonds outstanding that were issued 10 years ago at their par value of $1,000. These bonds have 15 years to maturity and a coupon rate of 8 percent, with interest paid semiannually. The required return on these bonds has increased to 16 percent. What is the current value of one of these bonds?
2)A bond with a $1,000 face value and a 9 percent annual coupon pays interest annually. The bond matures in 12 years.
a)Determine the value of the bond to a friend of yours with a required rate of return of 11%.
b)A zero coupon bond with similar risk is selling for $300. The bond has a face value of $1,000 and matures in 12 years. Your friend asks you which bond she should invest in, the zero coupon bond or the bond in part (a). Which bond do you recommend, and why? Assume the market price of the bond in part (a) is $720.
3)If you are willing to pay $1,077 for a 15-year $1,000 par value bond that pays 9 percent interest semi-annually, what is your expected rate of return?
4)If the expected growth rate for dividends is zero, then the value of common stock will be equal to the current dividend.
a) true
b)false
5)Diana Ltd. paid a $4.50 per share dividend yesterday. The dividend is expected to grow at 9 percent per year for the foreseeable future. Diana Ltd. has a beta of 1.4, a standard deviation of returns of 28 percent, and a required return of 16%. What is the value of a share of Diana Ltd. common stock?
6)You purchased one share of Googling Enterprises common stock for $40 today. If the stock pays a dividend of $6.50 in one year, and sells for $50 at that time, what will the dividend yield, growth rate, and total rate of return be for the year?
7)Two projects are mutually exclusive if the accept/reject decision for one project has no impact on the accept/reject decision for the other project.
a)true
b)false
8)Rent-to-Own Equipment Co. is considering a new inventory system that will cost $450,000. The system is expected to generate positive cash flows over the next four years in the amounts of $250,000 in year one, $125,000 in year two, $110,000 in year three, and $80,000 in year four. Rent-to-Own's required rate of return is 10%. What is the internal rate of return of this project?
A)10.07%
b)11.89%
c)12.26%
d)12.69%
9)
Consider two mutually exclusive projects X and Y with identical initial outlays of $500,000 and useful lives of 5 years. Project X is expected to produce an after-tax cash flow of $150,000 each year. Project Y is expected to generate a single after-tax net cash flow of $1,015,000 in year 5. The discount rate is 15 percent.
a)Calculate the net present value for each project.
b)Calculate the IRR for each project.
c)What decision should you make regarding these projects?
10)
If a firmâs tax rate increases then its weighted average cost of capital increases also.
a)True
b)False
1) Due to a number of lawsuits related to toxic wastes, a major chemical company has recently experienced a market revaluation. The firm has bonds outstanding that were issued 10 years ago at their par value of $1,000. These bonds have 15 years to maturity and a coupon rate of 8 percent, with interest paid semiannually. The required return on these bonds has increased to 16 percent. What is the current value of one of these bonds?
2)A bond with a $1,000 face value and a 9 percent annual coupon pays interest annually. The bond matures in 12 years.
a)Determine the value of the bond to a friend of yours with a required rate of return of 11%.
b)A zero coupon bond with similar risk is selling for $300. The bond has a face value of $1,000 and matures in 12 years. Your friend asks you which bond she should invest in, the zero coupon bond or the bond in part (a). Which bond do you recommend, and why? Assume the market price of the bond in part (a) is $720.
3)If you are willing to pay $1,077 for a 15-year $1,000 par value bond that pays 9 percent interest semi-annually, what is your expected rate of return?
4)If the expected growth rate for dividends is zero, then the value of common stock will be equal to the current dividend.
a) true
b)false
5)Diana Ltd. paid a $4.50 per share dividend yesterday. The dividend is expected to grow at 9 percent per year for the foreseeable future. Diana Ltd. has a beta of 1.4, a standard deviation of returns of 28 percent, and a required return of 16%. What is the value of a share of Diana Ltd. common stock?
6)You purchased one share of Googling Enterprises common stock for $40 today. If the stock pays a dividend of $6.50 in one year, and sells for $50 at that time, what will the dividend yield, growth rate, and total rate of return be for the year?
7)Two projects are mutually exclusive if the accept/reject decision for one project has no impact on the accept/reject decision for the other project.
a)true
b)false
8)Rent-to-Own Equipment Co. is considering a new inventory system that will cost $450,000. The system is expected to generate positive cash flows over the next four years in the amounts of $250,000 in year one, $125,000 in year two, $110,000 in year three, and $80,000 in year four. Rent-to-Own's required rate of return is 10%. What is the internal rate of return of this project?
A)10.07%
b)11.89%
c)12.26%
d)12.69%
9)
Consider two mutually exclusive projects X and Y with identical initial outlays of $500,000 and useful lives of 5 years. Project X is expected to produce an after-tax cash flow of $150,000 each year. Project Y is expected to generate a single after-tax net cash flow of $1,015,000 in year 5. The discount rate is 15 percent.
a)Calculate the net present value for each project.
b)Calculate the IRR for each project.
c)What decision should you make regarding these projects?
10)
If a firmâs tax rate increases then its weighted average cost of capital increases also.
a)True
b)False
