Debreu Beverages has an optimal capital structure that is 50% common equity, 40% debt, and 10% preferred stock. Debreu's pretax cost of equity is 12%. Its pretax cost of preferred equity is 7%, and its pretax cost of debt is also 7%. If the corporate tax rate is 35%, what is the weighed average cost of capital?

The coupon rate on a debt issue is 12%. If the yield to maturity on the debt is 9.33%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 34%?

The coupon rate on an issue of debt is 12%. The yield to maturity on this issue is 14%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds?

Klein Corp. can issue $1,000 par value bond that pays $100 per year in interest at a price of $980. The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the after-tax cost of debt?

A firm is paying an annual dividend of $3.63 for its preferred stock which is selling for $62.70. There is a selling cost of $3.30. What is the after-tax cost of preferred stock if the firm's tax rate is 33%?

A firm's preferred stock pays an annual dividend of $4, and the stock sells for $80. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 30%?

Expected cash dividends are $2.50, the dividend yield is 6%, flotation costs are 4% of price, and the growth rate is 3%. Compute cost of new common stock.

The general rule for using the weighted average cost of capital (WACC) in capital budgeting decisions is to accept all projects with:

A. rates of return greater than or equal to the WACC.

B. rates of return less than the WACC.

C. rates of return equal to or less than the WACC.

D. positive rates of return.

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Here is the solution for this set. http://www.box.com/s/85da1b244d1cd0e43684 Again, please check the green ones from your book. I am going to dinner. Please give me 15-20 minutes. Sorry for the inconvenience.

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ok, what does the green vs yellow highlighted answers mean?

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Question 1 of 20

5.0 Points

Cash flow can be said to equal operating income:

A. less taxes plus depreciation.

B. less taxes.

C. before depreciation and taxes plus depreciation.

The Dammon Corp. has the following investment opportunities. Year Machine A Inflows ($15,000 investment) Machine B Inflows ($22,500 investment) Machine C Inflows ($37,500 investment) 1 $6,000 $12,000 $-0- 2 9,000 12,000 30,000 3 3,000 10,500 30,000 4 -0- 10,500 15,000 5 -0- -0- 15,000 Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose?

Assuming that a firm has no capital rationing constraint and that a firm's investment alternatives are not mutually exclusive, the firm should accept all investment proposals:

A. for which it can obtain financing.

B. that have a positive net present value.

C. that have positive cash flows.

D. that provide returns greater than the after-tax cost of debt.

The Net Present Value Method is a more conservative technique for selecting investment projects than the Internal Rate of Return method because the NPV method:

A. assumes that cash flows are reinvested at the project's internal rate of return.

B. concentrates on the liquidity aspects of investment projects.

C. assumes that cash flows are reinvested at the firm's weighted average cost of capital.

A project has the following projected outcomes in dollars: $250, $350, and $500. The probabilities of their outcomes are 25%, 50%, and 25% respectively. What is the expected value of these outcomes?

Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?

Genetech has $2,000,000 in assets, have decided to finance 30% with long-term financing (13% rate) and 70% with short-term financing (9%) rate. What will be their annual interest costs?

Holland Construction Co. has an outstanding 180-day bank loan of $400,000 at an annual interest rate of 9.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.

Financial intermediaries include all of the following EXCEPT:

A. commercial banks.

B. life insurance companies.

C. corporations.

D. pension plans.

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Almost done.

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Here you go: http://www.box.com/s/ef79259bee6b8875ccd7

Customer:

last and final set.

Customer:

Question 1 of 20

5.0 Points

A convertible bond is currently selling for $945. It is convertible into 15 shares of common which presently sell for $57 per share. What is the conversion premium?

A convertible bond is currently selling for $1335. It is convertible into 20 shares of common which presently sell for $56 per share. What is the conversion premium?

Mirrlees Corp. has 10,000 6.25% bonds convertible into 40 shares per $1000 bond. Mirrlees has 600,000 outstanding shares. Mirrlees has a tax rate of 40%. The average Aa bond yield at time of issue was 10%. Compute basic earnings per share if after-tax earnings are $750,000.

Vickrey Technology has had net income of $2,000,000 in the current fiscal year. There are 1,000,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $8 million. The $8 million is represented by 8,000 different $1,000 bonds. Each $1,000 bond pays 3 percent interest. The conversion ratio is 30. The firm is in a 30 percent tax bracket. What is Vickrey's diluted earnings per share?

Jacobs and Company has warrants outstanding, which are selling at a $3 premium above intrinsic value. Each warrant allows its owner to purchase one share of common stock at $25. If the common stock currently sells for $28, what is the warrant price?

Sen Corporation warrants carry the right to buy 10 shares of Sen common stock at $3.50 per share. The common stock has a current market price of $4.25 per share. What is the intrinsic or minimum value of one Sen warrant?

A warrant which does not expire until several years in the future which provides its owner the opportunity to buy a stock. If the stock price rises, the warrant will probably sell for __________ its intrinsic value.

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