course materials

1. Bankston corporation forecasts that if all of its existing financial
1. (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs =
10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? (Points :
10)$23.11$23.70$24.31$24.93$25.57 2. (TCO D) If D0 = $2.25, g (which is constant) = 3.5%,
and P0 = $50, what is the stock’s expected dividend yield for the coming year? (Points :
10)4.42%4.66%4.89%5.13%5.39% 3. (TCO D) Rebello’s preferred stock pays a dividend of
$1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not
nominal) rate of return? (Points : 10)6.62%6.82%7.03%7.25%7.47% 4. (TCO E) Bankston
Corporation forecasts that if all of its existing financial policies are followed, its proposed
capital budget would be so large that it would have to issue new common stock. Since new
stock has a higher cost than retained earnings, Bankston would like to avoid issuing new
stock. Which of the following actions would REDUCE its need to issue new common stock?
(Points : 10)Increase the dividend payout ratio for the upcoming year.Increase the
percentage of debt in the target capital structure.Increase the proposed capital
budget.Reduce the amount of short-term bank debt in order to increase the current
ratio.Reduce the percentage of debt in the target capital structure. 5. (TCO E) The MacMillen
Company has equal amounts of low-risk, average-risk, and high-risk projects. The firm’s
overall WACC is 12%. The CFO believes that this is the correct WACC for the company’s
average-risk projects, but that a lower rate should be used for lower-risk projects and a
higher rate for higher-risk projects. The CEO disagrees, on the grounds that even though
projects have different risks, the WACC used to evaluate each project should be the same
because the company obtains capital for all projects from the same sources. If the CEO’s
position is accepted, what is likely to happen over time? (Points : 10)The company will take
on too many high-risk projects and reject too many low-risk projects.The company will take
on too many low-risk projects and reject too many high-risk projects.Things will generally
even out over time, and, therefore, the firm’s risk should remain constant over time.The
company’s overall WACC should decrease over time because its stock price should be
increasing.The CEO’s recommendation would maximize the firm’s intrinsic value. 6. (TCO D)
Butcher Timber Company hired your consulting firm to help them estimate the cost of
common equity. The yield on the firm’s bonds is 8.75%, and your firm’s economists believe
that the cost of common can be estimated using a risk premium of 3.85% over a firm’s own
cost of debt. What is an estimate of the firm’s cost of common from retained earnings?
(Points : 10)12.60%13.10%13.63%14.17%14.74% 7. (TCO F) Cornell Enterprises is
considering a project that has the following cash flow and WACC data. What is the project’s

2. NPV? Note that a project’s expected NPV can be negative, in which case it will be
rejected. WACC: 10.00%Year 0 1 2 3———————————————–Cash flows -$1,050
$450 $460 $470 (Points : 10)$ 92.37$ 96.99$101.84$106.93$112.28 8. (TCO F) Maxwell
Feed & Seed is considering a project that has the following cash flow data. What is the
project’s IRR? Note that a project’s IRR can be less than the WACC (and even negative), in
which case it will be rejected. Year 0 1 2 3 4 5———————————————————
—————————-Cash flows -$9,500 $2,000 $2,025 $2,050 $2,075 $2,100 (Points :
10)2.08%2.31%2.57%2.82%3.10% 9. (TCO F) Masulis Inc. is considering a project that has
the following cash flow and WACC data. What is the project’s discounted payback? WACC:
10.00%Year 0 1 2 3 4———————————————————Cash flows -$950 $525
$485 $445 $405 (Points : 10)1.61 years1.79 years1.99 years2.22 years2.44 years 10. (TCO
H) Temple Corp. is considering a new project whose data are shown below. The equipment
that would be used has a three-year tax life, would be depreciated by the straight-line
method over its three-year life, and would have a zero salvage value. No new working
capital would be required. Revenues and other operating costs are expected to be constant
over the project’s three-year life. What is the project’s NPV?Risk-adjusted WACCNet
investment cost (depreciable basis)Straight-line deprec. rateSales revenues, each
yearOperating costs (excl. deprec.), each yearTax rate
10.0%$65,00033.333%$65,500$25,00035.0%a. $15,740b. $16,569c. $17,441d. $18,359e.
$19,325Indicate your choice for your answer – a,b,c,d,e first and then show your
work/explain your answer so as to earn partial credit in the event you selected the
incorrect answer.Should be in excel• Problemso 16-1 Cash Managemento 16-2 Receivables
Investmento 16-3 Cost of Trade Credito 16-4 Cost of Trade Credito 16-5 Accounts
Payable(16-1) Cash Management Williams & Sons last year reported sales of $10 million
and an inventory turnover ratio of 2. The company is now adopting a new inventory system.
If the new system is able to reduce the firm’s inventory level and increase the firm’s
inventory turnover ratio to 5 while maintaining the same level of sales, how much cash will
be freed up?(16-2) Receivables Investment Medwig Corporation has a DSO of 17 days. The
company averages $3,500 in credit sales each day. What is the company’s average accounts
receivable?(16-3) Cost of Trade Credit What is the nominal and effective cost of trade credit
under the credit terms of 3/15, net 30?(16-4) Cost of Trade Credit A large retailer obtains
merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its
bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its
credit terms.) What is the retailer’s effective cost of trade credit?(16-5) Accounts PayableA
chain of appliance stores, APP Corporation, purchases inventory with a net price of
$500,000 each day. The company purchases the inventory under the credit terms of 2/15,
net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is the
average accounts payable for APP?