Forums Week One Discussions Discussion Question #1Articl.docx

Forums / Week One Discussions / Discussion Question #1
Articles for the Discussion Question are assigned from
professional journals and are available via the Online Research
Center. Students must provide a critical review of these articles
and substantially reply to the contributions of at least one
peer.
Individual postings should include an evaluation of the content
of the article and explain how it relates to the concepts in
the course text and other external resources. The postings
should be analytic in nature and include comparisons/contrasts
and examples that can bolster your argument. Postings and
replies should be 250 - 300 words in length and free of any
spelling or grammar errors. The following criteria are used to
grade your discussion group submissions.
� Timeliness (Did the student contribute throughout the
week? Post early to allow fellow students ample time to review
and respond to your postings.)
� Use of External Resources, Citations, and Resources (Did
student perform independent research and cite sources from
scholarly academic journals or recognized research
institutions?)
� Quality (Is the submission professional, focused, pertinent,
and free of grammar and spelling errors?)
� Participation and Classroom Interaction (Did the student
substantially respond and interact with other student postings in
a collegial and/or critical manner?)

The Discussion Groups are designed to enhance (and evaluate)
student participation and interaction during the course.
Accordingly, your interaction with other students will be part of
the grading calculus.
Article: Roger Smith. (1993, Sept.). Beyond Tocqueville,
Myrdal and Hartz: The multiple traditions in America.
American Political Science Review, 8, (3), 549-66.
You can access the article via the web resources link or directly
from the online library.
-
This article is a study of the the US political culture for the
period 1870-1920. It illustrates the conflictual and contradictory
product of multiple political traditions. Alexis de Tocqueville's
"Democracy in America," Gunnar Myrdal's "American
Dilemma" and Louis Hartz's "Liberal Tradition in America" are
critiqued.
Upon review, post (and respond to postings) under
Discussion Question #1 your thoughts and analysis of the article
as it relates to module 1 topics.
Questions to consider are (These are only suggestions, not
required):
1. Does the article address the market model of governance? If
so how?
2. How is the concept of "polis" described in the article? What
are the "common problems"?
3. Is income redistribution a factor in the article? if so, how?

4. Were resources equally distributed? Were deviations
legitimate in terms of other social goals?
Utilize external resources as necessary to support your opinions
and claims.
Discussion Question #2 ( 51 messages - 46 unread ) Post New
ThreadPlease respond to the following question.Hide Full
Description
peer.
of the article and explain how it relates to the concepts in the
text and other external resources. The postings should be
analytic in nature and include comparisons/contrasts and
examples that can bolster your argument. Postings and replies
should be 250 - 300 words in length and free of any spelling or
grammar errors.
The following criteria are used to grade your discussion group
submissions.
week?Post early to allow fellow students ample time to review
institutions?)

This discussion involves Journal Article: Moon, Jae M. &
DeLeon, Peter. (2001, July). Municipal reinvention: Managerial
values and diffusion among municipalities. Journal of Public
Administration Research and Theory, 11, (3), 327-352.
as it relates to Module 2 topics. Utilize external resources as
necessary to support your opinions and claims.
Questions to consider are:
1. How does the article relate to the concept of efficiency
within the context of the public policy?
2. Is there an equality-efficiency trade-off?
3. What are the dimensions of need outlined in the article?
4. Is there a security-efficiency trade-off?

Forum 3
peer.
grammar errors.
submissions.
institutions?)

This discussion involves Journal Article: Lemley, Ellen C. &
Russell, Gregory D. (2002). Implementing restorative justice by
"groping along:" A case study in program evolutionary
implementation. Justice System Journal, 23, (2), 157-192.
as it relates to Module 3 topics. Utilize external resources as
Consider the following questions in your postings:
1. Are there concepts of liberty in the article? If so, what is the
liberty-security trade-off?
2. Are there symbolic representations of a policy problem? If
so, are they symbolic devices of narrative stories, synecdoche,
metaphors or ambiguous?
Discussion Question #4
peer.

grammar errors.
submissions.
institutions?)
This discussion involves Journal Article: : Behn, Robert D.
(2003, Sep-Oct). Why measure performance? Different purposes
require different measures. Public Administration Review, 63,
(5), 586.
as it relates to module 4 topics. Utilize external resources as

Questions to consider in your postings are:
1. In this article, are numbers evaluated as metaphors?
2. Can these numbers be analyzed as norms and symbols?
3. How is the assessment measured in the polis?
4. Is there a causal story? If so, what is the problem definition?
Discussion Question #5
peer.
grammar errors.
submissions.

institutions?)
This discussion involves Journal Article: Bianco, William T.
(1998, Oct). Different paths to the same result: Rational choice,
political psychology and impression formation in campaigns.
American Journal of Political Science, 42, (4), 1061-1082.
1. What is of "interest" in the article? How are these interests
mobilized in the polis?
2. How do issues and interests define each other in the article?
3. Does the concept of rational decision apply to the article?

4. What is decision-making as it relates to the polis?
5. Is there a decision-analysis strategy?
Forum 6
This discussion involves Journal Article: Pierce, W. David,
Banko, Katherine M., & So, Sylvia. (2003, Fall). Positive
effects of rewards and performance standards on intrinsic
motivation. The Psychological Record, 53, (4), 561.
1. How are inducements used in the polis from this article? Is
there a difference between inducements in the rationality model
and the polis model?
2. Are there examples of good rules? How does it apply to rule-
making in the polis?
Forum 7

and substantially reply to the contributions of at least one peer.
grammar errors.
submissions.
institutions?)
student participation and interaction during the
course. Accordingly, your interaction with other students will
be part of the grading calculus.
This discussion involves Journal Article:
Cobb, Michael D. & Kuklinski, James H. (1997, Jan). Changing
Minds: Political arguments and political persuasion. American
Journal of Political Science
Upon review, post (and respond to postings) under Discussion
Question #7 your thoughts and analysis of the article as it
relates to module 7 topics. Utilize external resources as

Consider the following questions:
1. Are there two faces of persuasion in the article?
2. Are there examples of information and propaganda?
3. How can the use of persuasion within the context of the
rational-democratic model, the totalitarian model and the polis
model be described in this article?
4. What are the concepts of rights in the polis as it relates to
the topic?
5. Can rights be evaluated as policy instruments?
Forum 8
peer.
grammar errors.
submissions.

institutions?)
This discussion involves Journal Article:
Acemoglu, Daron & Robinson, James A. (2001, Sep).
Inefficient redistribution. The American Political Science
Review, 95, (3), 649-662.
Consider the following questions:
1. Does the impulse to restructure authority (constitutional
engineering) apply in this article? Why/Why not?
2. What is the impact of redefining membership in the polis?

3. What are the arguments for centralization versus
decentralization?
4. Is there value to political reasoning as strategic
representation?
.
value:
1.00 points
Problem 10-2 Bond value [LO3]
Applied Software has $1,000 par value bonds outstanding at 16
percent interest. The bonds will mature in 20 years.
Use Appendix B and Appendix D.
Compute the current price of the bonds if the present yield to
maturity is (Round "PV Factor" to 3 decimal places,
intermediate and final answers to 2 decimal places. Omit the "$"
sign in your response):
Price of the
bond
(a) 8 percent
$
(b) 14 percent
$
(c) 11 percent
$
2.
value:
1.00 points

Barry’s Steroids Company has $1,000 par value bonds
outstanding at 14 percent interest. The bonds will mature in 40
years.
If the percent yield to maturity is 12 percent, what percent of
the total bond value does the repayment of principal represent?
Use Appendix B and Appendix D. (Round intermediate
calculations to 2 decimal places, "PV Factor" and final answer
to 3 decimal places. Omit the "%" sign in your response.)
Principal repayment
%
3.
value:
1.00 points
Essex Biochemical Co. has a $1,000 par value bond outstanding
that pays 14 percent annual interest. The current yield to
maturity on such bonds in the market is 9 percent.
Use Appendix B and Appendix D.
Compute the price of the bonds for these maturity dates (Round
"PV Factor" to 3 decimal places, intermediate and final answers
to 2 decimal places. Omit the "$" sign in your response):
Price of the
bond
(a) 40 years
$
(b) 17 years
$
(c) 5 years

$
4.
value:
2.00 points
Problem 10-8 Interest rate effect [LO3]
Refer to Table 10-1, which is based on bonds paying 10 percent
interest for 20 years. Assume interest rates in the market (yield
to maturity) go from 10 percent to 9 percent.
(a)
What was the bond price at 10 percent? (Round "PV Factor" to
3 decimal places, intermediate calculations and final answers to
2 decimal places. Omit the "$" sign in your response.)
Bond price
$
(b)
What is the bond price at 9 percent? (Round "PV Factor" to 3
decimal places, intermediate calculations and final answers to 2
decimal places. Omit the "$" sign in your response.)
Bond price
$
(c)
What would be your percentage return on the investment if you
bought when rates were 10 percent and sold when rates were 9
percent? (Round "PV Factor" to 3 decimal places, intermediate
calculations and final answers to 2 decimal places. Enter the
value as positive value. Omit the "%" sign in your response.)

on investment
%
5.
value:
1.00 points
Problem 10-11 Effect of maturity on bond price [LO3]
Refer to Table 10-2
(a)
Assume the interest rate in the market (yield to maturity) goes
down to 8 percent for the 10 percent bonds. Using column 2,
indicate what the bond price will be with a 5-year, a 25-year,
and a 30-year time period. (Round "PV Factor" to 3 decimal
places, intermediate calculations and final answers to 2 decimal
places. Omit the "$" sign in your response.)
Maturity
Bond price
5 Years
$
25 years
30 years
(b)
up to 12 percent for the 10 percent bonds. Using column 3,
indicate what the bond price will be with a 5-year, a 25-year,
and a 30-year period. (Round "PV Factor" to 3 decimal places,
intermediate calculations and final answers to 2 decimal places.
Omit the "$" sign in your response.)

Maturity
Bond price
5 Years
$
25 years
30 years
(c)
down to 8 percent for the 10 percent bonds. If interest rates in
the market are going down, which bond would you choose to
own?
Shortest-term bond
Longest-term bond
(d)
up to 12 percent for the 10 percent bonds. If interest rates in the
market are going up, which bond would you choose to own?
Longest-term bond
Shortest-term bond

6.
value:
1.00 points
Problem 10-13 Effect of yield to maturity on bond price [LO3]
Tom Cruise Lines, Inc., issued bonds five years ago at $1,000
per bond. These bonds had a 30-year life when issued and the
annual interest payment was then 15 percent. This return was in
line with the required returns by bondholders at that point as
described below:
Real rate of return
5
%
Inflation premium
6
Risk premium
4
Total return
15
%

Assume that five years later the inflation premium is only 2
percent and is appropriately reflected in the required return (or
yield to maturity) of the bonds. The bonds have 25 years
remaining until maturity.
Compute the new price of the bond. Use Appendix
B and Appendix D. (Round "PV Factor" to 3 decimal places,
intermediate and final answer to 2 decimal places. Omit the "$"
sign in your response.)
New price
$
7.
value:
2.00 points
Problem 10-14 Analyzing bond price changes [LO3]
(a)
Find the present value of 3 percent × $1,000 (or $30) for 25
years at 12 percent. The $30 is assumed to be an annual
payment. Use Appendix D. (Round "PV Factor" to 3 decimal
places, intermediate and final answer to 2 decimal places. Omit
the "$" sign in your response.)
Present value
$
(b)
Add the answer obtained in part a to 1,000. (Round "PV Factor"
to 3 decimal places, intermediate and final answer to 2 decimal

Present value
$
8.
value:
2.00 points
Problem 10-17 Deep discount bonds [LO3]
Lance Whittingham IV specializes in buying deep discount
bonds. These represent bonds that are trading at well below par
value. He has his eye on a bond issued by the Leisure Time
Corporation. The $1,000 par value bond pays 7 percent annual
interest and has 16 years remaining to maturity. The current
yield to maturity on similar bonds is 12 percent.
(a)
What is the current price of the bonds? Use Appendix
B and Appendix D. (Round "PV Factor" to 3 decimal places,
intermediate and final answers to 2 decimal places. Omit the "$"
Current price
$
(b)
By what percent will the price of the bonds increase between
now and maturity? (Round "PV Factor" to 3 decimal places,
intermediate and final answers to 2 decimal places. Omit the
"%" sign in your response.)
Price increases by
%
9.

value:
1.00 points
Problem 10-19 Approximate yield to maturity [LO3]
Bonds issued by the Tyler Food Corporation have a par value of
$1,000, are selling for $1,570, and have 20 years remaining to
maturity. The annual interest payment is 14.5 percent ($145).
Compute the approximate yield to maturity. (Do not round
intermediate calculations. Round your answer to 2 decimal
places. Omit the "%" sign in your response.)
Approximate yield to maturity
%
10.
value:
2.00 points
Problem 10-22 Bond value-semiannual analysis [LO3]
You are called in as a financial analyst to appraise the bonds of
Olsen’s Clothing Stores. The $1,000 par value bonds have a
quoted annual interest rate of 8 percent, which is paid
semiannually. The yield to maturity on the bonds is 10 percent
annual interest. There are 15 years to maturity. Use Appendix
B andAppendix D.
(a)
Compute the price of the bonds based on semiannual interest
payments. (Round "PV Factor" to 3 decimal places, intermediate
and final answer to 2 decimal places. Omit the "$" sign in your
response.)
Price of the bonds
$

(b)
With 10 years to maturity, if yield to maturity goes down
substantially to 8 percent, what will be the new price of the
bonds? (Round "PV Factor" to 3 decimal places, intermediate
and final answer to 2 decimal places. Omit the "$" sign in your
response.)
New price
$
11.
value:
1.00 points
Problem 10-24 Preferred stock value [LO4]
Bedford Mattress Company issued preferred stock many years
ago. It carries a fixed dividend of $11 per share. With the
passage of time, yields have gone down from the original 10
percent to 9 percent (yield is the same as required rate of
return).
(a)
What was the original issue price? (Round your answer to 2
decimal places.Omit the "$" sign in your response.)
Original price
$
(b)
What is the current value of this preferred stock?(Round your
answer to 2 decimal places.Omit the "$" sign in your response.)
Current value
$

check my workeBook Link
12.
value:
1.00 points
Problem 10-26 Preferred stock rate of return [LO4]
Grant Hillside Homes, Inc., has preferred stock outstanding that
pays an annual dividend of $14.20. Its price is $139.
What is the required rate of return (yield) on the preferred
stock? (Round your answer to 2 decimal places. Omit the "%"
Rate of return
%
13.
value:
1.00 points
Problem 10-28 Common stock value [LO5]
Laser Optics will pay a common stock dividend of $3.20 at the
end of the year (D1). The required rate of return on common
stock (Ke) is 20 percent. The firm has a constant growth rate (g)
of 10 percent.
Compute the current price of the stock (P0). (Round your
answer to 2 decimal places.Omit the "$" sign in your response.)
Current price
$
14.

value:
2.00 points
Problem 10-29 Common stock value under different market
conditions [LO5]
Ecology Labs, Inc., will pay a dividend of $3.75 per share in the
next 12 months (D1). The required rate of return (Ke) is 16
percent and the constant growth rate is 6 percent. (Each
question is independent of the others.)
(a)
Compute the price of Ecology Labs' common stock. (Round
your intermediate and final answer to 2 decimal places. Omit
Price
$
(b)
Assume Ke, the required rate of return, goes up to 19 percent;
what will be the new price? (Round your intermediate and final
answer to 2 decimal places. Omit the "$" sign in your response.)
New price
$
(c)
Assume the growth rate (g) goes up to 10 percent; what will be
the new price? Ke goes back to its original value of 16
percent. (Round your intermediate and final answer to 2 decimal
New price
$
(d)

Assume D1 is $5.00; what will be the new price? Assume Ke is
at its original value of 16 percent and g goes back to its original
value of 6 percent. (Round your intermediate and final answer
to 2 decimal places. Omit the "$" sign in your response.)
New price
$
check my workeBook Linkrefere
15.
value:
2.00 points
Problem 10-31 Common stock value based on determining
growth rate [LO5]
Justin Cement Company had the following pattern of earnings
per share over the last five years:
Year
Earnings
per share
2006
$
9.00
2007
9.54
2008
10.11
2009

10.72
2010
11.36
The earnings per share have grown at a constant rate (on a
rounded basis) and is expected to do so in the future. Dividends
represent 40 percent of earnings.
(a)
Project earnings and dividends for the next year (2011). (Round
yourintermediate and final answers to 2 decimal places. Omit
2011
Earnings
$
Dividend
$
(b)
If the required rate of return (Ke) is 13 percent, what is the
anticipated stock price (P0) at the beginning of 2011? (Round
yourintermediate and final answers to 2 decimal places. Omit
Anticipated stock price
$
check my workeBook Linkreferences

16.
value:
1.00 points
Problem 10-32 Common stock required rate of return [LO5]
A firm pays a $12.80 dividend at the end of year one (D1), has a
stock price of $88, and a constant growth rate (g) of 5 percent.
Compute the required rate of return (Ke). (Round
yourintermediateand final answerto 2 decimal places. Omit the
Rate of return
%
17.
value:
4.00 points
Problem 10-35 Common stock value based on PV calculations
[LO5]
Beasley Ball Bearings paid a $4 dividend last year. The
dividend is expected to grow at a constant rate of 6 percent over
the next four years. The required rate of return is 19 percent
(this will also serve as the discount rate in this problem).
Use Appendix B.
(a)
Compute the anticipated value of the dividends for the next four
years. (Round your intermediate calculations and final answers
to 3 decimal places. Omit the "$" sign in your response.)

Anticipated
value
D1
$
D2
$
D3
$
D4
$
(b)
Calculate the present value of each of the anticipated dividends
at a discount rate of 19 percent.(Round "PV Factor",
intermediate calculations and final answers to 3 decimal places.
PV of
dividends
D1
$
D2
D3
D4

Total
$
(c)
Compute the price of the stock at the end of the fourth year
(P4). (Round "PV Factor", intermediate calculations and final
answer to 3 decimal places. Omit the "$" sign in your response.)
Price of the stock
$
(d)
Calculate the present value of the year 4 stock price at a
discount rate of 19 percent. (Round "PV Factor", intermediate
calculations and final answer to 3 decimal places. Omit the "$"
Price of the stock (discounted)
$
(e)
Compute the current value of the stock. (Round "PV Factor",
intermediate calculations and final answer to 3 decimal places.
Current value
$
(f)

Use formula given below to show that it will provide
approximately the same answer as part e. (Omit the "$" sign in
your response.)
P0
=
D1
Ke − g
Current value
$
(g)
If current EPS is equal to $5.700 and the P/E ratio is 1.2 times
higher than the industry average of 5, what would the stock
price be? (Round your intermediate calculations and final
answers to 2 decimal places. Omit the "$" sign in your
response.)
Stock price
$
(h)
By what dollar amount is the stock price in part g different from
the stock price in part f? (Input the amount as a positive value.
Round intermediate calculations and final answer to 2 decimal
Amount
$
(i)
In regard to the stock price in part f, indicate which direction it
would move if

(1)
D1 increases
(2)
Ke increases
(3)
g increases
rev: 10_18_2012
18.
value:
1.00 points
Problem 11-2 Cost of capital [LO2]
Speedy Delivery Systems can buy a piece of equipment that
should provide an 8 percent return and can be financed at 5
percent with debt. The CEO likes earning more than the cost of
debt, and he thinks this would be a good deal. The firm can also
buy a machine that would yield a 16 percent return but would
cost 18 percent to finance through common equity. Earning less
than the cost of equity sounds bad to the CEO. Assume debt and
common equity each represent 50 percent of the firm’s capital
structure.
(a)
Compute the weighted average cost of capital. (Round your
intermediate and final answers to 1 decimal place. Omit the "%"

Weighted average cost of capital
%
(b)
Which project(s) should be accepted?
Piece of equipment should be financed.
New machine should be financed.
19.
value:
1.00 points
Problem 11-3 Effect of discount rate [LO2]
A brilliant young scientist is killed in a plane crash. It was
anticipated that he could have earned $210,000 a year for the
next 20 years. The attorney for the plaintiff’s estate argues that
the lost income should be discounted back to the present at 4
percent. The lawyer for the defendant’s insurance company
argues for a discount rate of 15 percent.
What is the difference between the present value of the
settlement at 4 percent and 15 percent? Compute each one
separately. Use Appendix D. (Round "PV Factor" to 3 decimal
places. Round your answers to the nearest dollar amount. Omit
the "$" sign in your response)
Present value

PV at 4% rate
$
PV at 15% rate
Difference
$
20.
value:
1.00 points
Problem 11-5 Aftertax cost of debt [LO3]
Calculate the aftertax cost of debt under each of the following
conditions. (Round your answers to 2 decimal places. Omit the
Yield
Corporate
tax rate
Cost of debt

a.
7.0
%
31
%
%
b.
14.0
25
c.
15.5
25

check my workeBook LinkView Hint #1references
21.
value:
1.00 points
Problem 11-7 Aftertax cost of debt [LO3]
The Goodsmith Charitable Foundation, which is tax-exempt,
issued debt last year at 9 percent to help finance a new
playground facility in Los Angeles. This year the cost of debt is
25 percent higher; that is, firms that paid 11 percent for debt
last year will be paying 13.75 percent this year.
(a)
If the Goodsmith Charitable Foundation borrowed money this
year, what would the aftertax cost of debt be, based on its cost
last year and the 25 percent increase? (Round your answer to 2
decimal places. Omit the "%" sign in your response.)
Cost of debt
%
(b)
If the receipts of the foundation were found to be taxable by the
IRS (at a rate of 35 percent because of involvement in political
activities), what would the aftertax cost of the debt be? (Round
your answer to 2 decimal places. Omit the "%" sign in your
response.)
Cost of debt
22.

value:
1.00 points
Problem 11-9 Approximate yield to maturity and cost of debt
[LO3]
Airbone Airlines, Inc., has a $1,000 par value bond outstanding
with 30 years to maturity. The bond carries an annual interest
payment of $100 and is currently selling for $880. Airbone is in
the 25 percent tax bracket. The firm wishes to know what the
aftertax cost of a new bond issue is likely to be. The yield to
maturity on the new issue will be the same as the yield to
maturity on the old issue because the risk and maturity date will
be similar.
(a)
Compute the approximate yield to maturity on the old issue and
use this as the yield for the new issue.(Do not round
intermediate calculations. Round your answer to 2 decimal
Yield on new issue
%
(b)
Make the appropriate tax adjustment to determine the aftertax
cost of debt. (Do not round intermediate calculations. Round
response.)
Cost of debt
%
23.
value:

1.00 points
Problem 11-11 Changing rates and cost of debt [LO3]
Russell Container Corporation has a $1,800 par value bond
outstanding with 20 years to maturity. The bond carries an
annual interest payment of $111 and is currently selling for
$1,200 per bond. Russell Corp. is in a 20 percent tax bracket.
The firm wishes to know what the aftertax cost of a new bond
issue is likely to be. The yield to maturity on the new issue will
be the same as the yield to maturity on the old issue because the
risk and maturity date will be similar.
Assume that the yield on the bonds goes up by 1 percentage
point and that the tax rate is now 39 percent.
(a)
What is the new after-tax cost of debt? (Hint: Use the
approximate yield to maturity to compute after-tax cost of
debt) (Round your answer to 2 decimal places. Omit the "%"
Cost of debt
%
(b)
Has the aftertax cost of debt gone up or down?
It has gone up.
It has gone down.

24.
value:
2.00 points
Problem 11-12 Real-world example and cost of debt [LO3]
KFW is planning to issue debt that will mature in the year 2012.
In many respects the issue is similar to currently outstanding
debt of the corporation. Using Table 11-2, identify:
(a)
The yield to maturity on similarly outstanding debt for the firm,
in terms of maturity. (Round your answer to 2 decimal places.
Omit the "%" sign in your response.)
Yield
%
(b)
Calculate yield to maturity with an increase of 0.25 percent than
the value determined in part a. (Round your answer to 2 decimal
Yield
%
(c)
If the firm is in a 40 percent tax bracket, what is the aftertax
cost of debt for yield determined in part b?(Round your answer
to 2 decimal places. Omit the "%" sign in your response.)
Cost of debt
%
rev: 07-21-2011
25.

value:
1.00 points
Problem 11-14 Cost of preferred stock [LO3]
The Meredith Corporation issued $100 par value preferred stock
10 years ago. The stock provided an 10 percent yield at the time
of issue. The preferred stock is now selling for $70. (Disregard
flotation costs.)
What is the current yield or cost of preferred stock? (Round
response.)
Yield
%
26.
value:
2.00 points
Problem 11-15 Comparison of the costs of debt and preferred
stock [LO3]
The treasurer of Riley Coal Co. is asked to compute the cost of
fixed income securities for her corporation. Even before making
the calculations, she assumes the aftertax cost of debt is at least
1 percent less than that for preferred stock.
Debt can be issued at a yield of 8.6 percent, and the
corporate tax rate is 30 percent. Preferred stock will be priced
at $54 and pay a dividend of $3.80. The flotation cost on the
preferred stock is $2.
(a)
Compute the aftertax cost of debt. (Round your answer to 2

Aftertax cost of debt
%
(b)
Compute the aftertax cost of preferred stock. (Round your
answer to 2 decimal places. Omit the "%" sign in your
response.)
Aftertax cost of preferred stock
%
(c)
Based on the facts given above, is the treasurer correct?
No
Yes
27.
value:
2.00 points
Problem 11-17 Costs of retained earnings and new common
stock [LO3]
Compute Ke and Kn under the following circumstances:
(a)
D1 = $8.00, P0 = $82, g = 7%, F = $6.00. (Round your

Ke
%
Kn
%
(b)
D1 = $0.50, P0 = $46, g = 3%, F = $4.50. (Round your
Ke
%
Kn
%
(c)
E1 (earnings at the end of period one) = $13, payout ratio
equals 40 percent, P0 = $46, g = 3.5%, F = $2.10. (Round your
Ke
%
Kn
%
(d)

D0 (dividend at the beginning of the first period) = $6, growth
rate for dividends and earnings (g) = 4%, P0= $72, F =
$3. (Round your intermediate and final answers to 2 decimal
Ke
%
Kn
%
28.
value:
1.00 points
Problem 11-19 Weighted average cost of capital [LO1]
United Business Forms’ capital structure is as follows:
Debt
40
%
Preferred stock
15
Common equity
45
The aftertax cost of debt is 11 percent, the cost of preferred
stock is 14 percent, and the cost of common equity (in the form
of retained earnings) is 17 percent.

Calculate United Business Forms’ weighted cost of each source
of capital and the weighted average cost of capital. (Round your
answers to 2 decimal places. Omit the "%" sign in your
response.)
Weighted cost
Debt (Kd)
%
Preferred stock (Kp)
Common equity (Ke)
Weighted average cost of capital (Ka)
%
check my workeBook LinkView Hint #1references
29.
value:
2.00 points

Problem 11-21 Weighted average cost of capital [LO1]
Sauer Milk, Inc., wants to determine the minimum cost of
capital point for the firm. Assume it is considering the
following financial plans:
Cost
(aftertax)
Weights
Plan A
Debt
5.0
%
20
%
Preferred stock
10.0
10
Common equity
14.0
70

Plan B
Debt
5.2
%
30
%
Preferred stock
10.2
10
Common equity
15.0
60
Plan C

Debt
6.0
%
40
%
Preferred stock
15.7
10
Common equity
11.6
50
Plan D
Debt
12.0
%
50
%
Preferred stock

16.6
10
Common equity
13.6
40
(a-1)
Compute the weighted average cost for four plans. (Round your
Weighted cost
Plan A
%
Plan B
Plan C
Plan D
(a-2)
Which of the four plans has the lowest weighted average cost of
capital?

Plan A
Plan B
Plan C
Plan D
(b)
Among Plan C and Plan D, which has higher weighted average
cost of capital.
Plan D
Plan C
30.
value:
2.00 points
Problem 11-25 Changes in cost and weighted average cost of
capital [LO1]
A-Rod Manufacturing Company is trying to calculate its cost of
capital for use in making a capital budgeting decision. Mr.
Jeter, the vice-president of finance, has given you the following
information and has asked you to compute the weighted average
cost of capital.
The company currently has outstanding a bond with a 9.6

percent coupon rate and another bond with an 7.2 percent rate.
The firm has been informed by its investment banker that bonds
of equal risk and credit rating are now selling to yield 10.5
percent. The common stock has a price of $50 and an expected
dividend (D1) of $1.70 per share. The historical growth pattern
(g) for dividends is as follows:
$1.25
1.39
1.54
1.70
The preferred stock is selling at $70 per share and pays a
dividend of $6.60 per share. The corporate tax rate is 30
percent. The flotation cost is 2.0 percent of the selling price for
preferred stock. The optimum capital structure for the firm is 25
percent debt, 10 percent preferred stock, and 65 percent
common equity in the form of retained earnings.
(a)
Compute the historical growth rate. (Round your intermediate
calculations and your final answer to 2 decimal Places. Omit the
Growth rate
%
(b)
Compute the cost of capital for the individual components in the
capital structure. (Round growth rate to nearest whole percent.
Round your answers to 2 decimal places. Omit the "%" sign in

your response.)
Cost of capital
Debt (Kd)
%
Common equity (Ke)
(c)
Calculate the weighted cost of each source of capital and the
weighted average cost of capital. (Round your intermediate
calculations and final answers to 2 decimal places. Omit the
Weighted cost
Debt (Kd)
%
Common equity (Ke)
%
31.

value:
2.00 points
Problem 11-26 Impact of credit ratings on cost of capital [LO3]
Northwest Utility Company faces increasing needs for capital.
Fortunately, it has an Aa3 credit rating. The corporate tax rate
is 35 percent. Northwest’s treasurer is trying to determine the
corporation’s current weighted average cost of capital in order
to assess the profitability of capital budgeting projects.
Historically, the corporation’s earnings and dividends per
share have increased about 4.6 percent annually and this should
continue in the future. Northwest’s common stock is selling at
$69 per share, and the company will pay a $6.20 per share
dividend (D1).
The company’s $106 preferred stock has been yielding 6
percent in the current market. Flotation costs for the company
have been estimated by its investment banker to be $4.00 for
preferred stock.
The company’s optimum capital structure is 35 percent debt,
10 percent preferred stock, and 55 percent common equity in the
form of retained earnings. Refer to the table below on bond
issues for comparative yields on bonds of equal risk to
Northwest.
Data on Bond Issues
Issue
Moody’s
rating
Price
Yield to maturity
Utilities:

Southwest electric power––71/4 2023
Aa2
$
920.18
8.66
%
Pacific bell––73/8 2025
Aa3
896.25
8.44
Pennsylvania power & light––81/2 2022
A2
995.66
8.45
Industrials:
Johnson & Johnson––63/4 2023
Aaa

850.24
8.35
%
Dillard’s Department Stores––71/8 2023
A2
910.92
8.88
Marriott Corp.––10 2015
B2
1,060.10
9.55
(a)
Compute the cost of debt, Kd (use the accompanying table—
relate to the utility bond credit rating for yield.) (Round your
answer to 2 decimal places. Omit the "%" sign in your
response.)
Cost of debt
%
(b)
Compute the cost of preferred stock, Kp. (Round your answer to
2 decimal places. Omit the "%" sign in your response.)
Cost of preferred stock
%

(c)
Compute the cost of common equity in the form of retained
earnings, Ke. (Round your answer to 2 decimal places. Omit the
Cost of common equity
%
(d)
Compute the weighted average cost of capital. (Round your
Weighted cost
Debt (Kd)
%
Common equity (Ke)
%
32.
value:
2.00 points
Problem 11-27 Marginal cost of capital [LO5]
Delta Corporation has the following capital structure:

Cost
(aftertax)
Weights
Weighted
cost
Debt (Kd)
6.6
%
20
%
1.32
%
11.2
10
1.12
Common equity (Ke) (retained earnings)
11.2
70
7.84

10.28
%

(a)
If the firm has $49 million in retained earnings, at what size
capital structure will the firm run out of retained
earnings? (Enter your answer in millions. Omit the "$" sign in
your response.)
Capital structure size (X)
$ million
(b)
The 6.6 percent cost of debt referred to above applies only to
the first $23 million of debt. After that the cost of debt will go
up. At what size capital structure will there be a change in the
cost of debt? (Enter your answer in millions. Omit the "$" sign
in your response.)
Capital structure size (Z)
$ million
rev: 04_27_2012
33.
value:
2.00 points
Problem 11-28 Marginal cost of capital [LO5]
The Nolan Corporation finds that it is necessary to determine its
marginal cost of capital. Nolan’s current capital structure calls
for 45 percent debt, 15 percent preferred stock, and 40 percent
common equity. Initially common equity will be in the form of
retained earnings (Ke) and then new common stock (Kn). The
costs of the various sources of financing are as follows: debt,
4.2 percent; preferred stock, 6 percent; retained earning, 14
percent; and new common stock, 15.2 percent.

(a)
What is the initial weighted average cost of capital? (Round
your intermediate calculations and final answer to 2 decimal
Weighted average cost of capital
%
(b)
If the firm has $26 million in retained earnings, at what size
capital structure will the firm run out of retained
earnings? (Enter your answer in millions. Omit the "$" sign in
your response.)
Capital structure size (X)
$ million
(c)
What will the marginal cost of capital be immediately after that
point? (Equity will remain at 40 percent of the capital structure,
but will all be in the form of new common stock, Kn.)(Round
your intermediate calculations and final answer to 2 decimal
Marginal cost of capital
%
(d)
The 4.2 percent cost of debt referred to above applies only to
the first $45 million of debt. After that the cost of debt will be
6.5 percent. At what size capital structure will there be a change
in the cost of debt?(Enter your answer in millions. Omit the "$"
Capital structure size (Z)
$ million

(e)
What will the marginal cost of capital be immediately after that
point? (Consider the facts in both parts cand d.) (Round your
intermediate calculations and final answer to 2 decimal places.
Omit the "%" sign in your response.)
Marginal cost of capital
%
check my workeBook Lin
34.
value:
2.00 points
Problem 11-30 Capital asset pricing model and dividend
valuation model [LO3]
Eaton Electronic Company’s treasurer uses both the capital
asset pricing model and the dividend valuation model to
compute the cost of common equity (also referred to as the
required rate of return for common equity).
Assume:
Rf
=
5
%
Km
=
11
%
β
=

1.3
D1
=
$
.75
P0
=
$
15
g
=
9
%
(a)
Compute Ki (required rate of return on common equity based on
the capital asset pricing model).(Round your final answers to 2
Ki
%
(b)
Compute Ke (required rate of return on common equity based on
the dividend valuation model). (Round your intermediate and
final answers to 2 decimal places. Omit the "%" sign in your
response.)
Ke
%

rev: 06-20-2011
(Click to select)
(Click to select)
(Click to select)
(Click to select)

Forums Week One Discussions Discussion Question #1Articl.docx

Recommended

Recommended

More Related Content

Similar to Forums Week One Discussions Discussion Question #1Articl.docx

Similar to Forums Week One Discussions Discussion Question #1Articl.docx (15)

More from budbarber38650

More from budbarber38650 (20)

Recently uploaded

Recently uploaded (20)

Forums Week One Discussions Discussion Question #1Articl.docx