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In this work of BUS 401 Week 3 Quiz Version c you will find
the next information:
1. The simulation approach provides us with (Points : 1)
2. Asian Trading Company paid a dividend yesterday of $5
per share (D0 = $4). The dividend is expected to grow at a
constant rate of 8% per year. The price of Asian Trading
Company's stock today is $29 per share. If Asian Trading
Company decides to issue new common stock, flotation costs
will equal $2.50 per share. Asian Trading Company's marginal
tax rate is 35%. Based on the above information, the cost of
retained earnings is (Points : 1)
3. Clothier, Inc. has a target capital structure of 40% debt and
60% common equity, and has a 40% marginal tax rate. If
Clothier's yield to maturity on bonds is 7.5% and investors
require a 15% return on Clothier's common stock, what is the
firm's weighted average cost of capital? (Points : 1)
4. Nickel Industries is considering the purchase of a new
machine that will cost $178,000, plus an additional $12,000
to ship and install. The new machine will have a 5-year useful
life and will be depreciated using the straight-line method.
The machine is expected to generate new sales of $85,000
per year and is expected to increase operating costs by
$10,000 annually. Nickel's income tax rate is 40%. What is the
projected incremental cash flow of the machine for year 1?
(Points : 1)
5. A company has preferred stock that can be sold for $21
2. per share. The preferred stock pays an annual dividend of
3.5% based on a par value of $100. Flotation costs associated
with the sale of preferred stock equal $1.25 per share. The
company's marginal tax rate is 35%. Therefore, the cost of
preferred stock is: (Points : 1)
6. Five Rivers Casino is undergoing a major expansion. The
expansion will be financed by issuing new 15-year, $1,000
par, 9% annual coupon bonds. The market price of the bonds
is $1,070 each. Gamblers flotation expense on the new bonds
will be $50 per bond. Gamblers marginal tax rate is 35%.
What is the pre-tax cost of debt for the newly-issued bonds?
(Points : 1)
7. Zellars, Inc. is considering two mutually exclusive projects,
A and B. Project A costs $95,000 and is expected to generate
$65,000 in year one and $75,000 in year two. Project B costs
$120,000 and is expected to generate $64,000 in year one,
$67,000 in year two, $56,000 in year three, and $45,000 in
year four. Zellars, Inc.'s required rate of return for these
projects is 10%. The net present value for Project B is (Points
: 1)
8. A new machine can be purchased for $1,200,000. It will
cost $35,000 to ship and $15,000 to modify the machine. A
$12,000 recently completed feasibility study indicated that
the firm can employ an existing factory owned by the firm,
which would have otherwise been sold for $180,000. The
firm will borrow $750,000 to finance the acquisition. Total
interest expense for 5-years is expected to approximate
$350,000. What is the investment cost of the machine for
capital budgeting purposes? (Points : 1)
9. Rent-to-Own Equipment Co. is considering a new inventory
system that will cost $750,000. The system is expected to
3. generate positive cash flows over the next four years in the
amounts of $350,000 in year one, $325,000 in year two,
$150,000 in year three, and $180,000 in year four. Rent-to-
Own's required rate of return is 8%. What is the net present
value of this project? (Points : 1)
10. PDF Corp. needs to replace an old lathe with a new, more
efficient model. The old lathe was purchased for $50,000
nine years ago and has a current book value of $5,000. (The
old machine is being depreciated on a straight-line basis over
a ten-year useful life.) The new lathe costs $100,000. It will
cost the company $10,000 to get the new lathe to the factory
and get it installed. The old machine will be sold as scrap
metal for $2,000. The new machine is also being depreciated
on a straight-line basis over ten years. Sales are expected to
increase by $8,000 per year while operating expenses are
expected to decrease by $12,000 per year. PDF's marginal tax
rate is 40%. Additional working capital of $3,000 is required
to maintain the new machine and higher sales level. The new
lathe is expected to be sold for $5,000 at the end of the
project's ten-year life. What is the project's terminal cash
flow? (Points : 1)
Business - General Business
1.
Question :
The appropriate cash flows for evaluating a corporate
investment decision are:
Student Answer:
incremental additional cash flows.
4. marginal after-tax cash flows.
incremental after-tax cash flows.
investment after-tax cash flows.
Instructor Explanation:
The answer can be found in Section 6.1: How to Compute
Cash Flows.
Points Received:
1 of 1
Comments:
2.
Question :
The typical corporate investment requires a large cash outlay
followed by several years of cash inflows. To make these cash
flows comparable, we do which of the following?
Student Answer:
Adjust both cash outflows and inflows for taxes.
Subtract interest charges to reflect the time value of money.
Adjust both outflows and inflows for the effects of
depreciation.
Apply time value of money concepts and compare present
values.
5. Instructor Explanation:
The answer can be found in Section 6.1: How to Compute
Cash Flows.
Points Received:
1 of 1
Comments:
3.
Question :
If depreciation expense is a noncash charge, why do we
consider it when determining cash flows?
Student Answer:
because depreciation expense reduces taxable income, so
reduces the amount of taxes paid
because depreciation expense offsets part of the initial cash
outlay for depreciable assets
because depreciation expense reduces net income
because depreciation expense is a method for allocating
costs
Instructor Explanation:
The answer can be found in Section 6.1: How to Compute
Cash Flows.
6. Points Received:
1 of 1
Comments:
4.
Question :
The internal rate of return is:
Student Answer:
the discount rate at which the NPV is maximized.
the discount rate used by people within the company to
evaluate projects.
the rate of return that a project must exceed to be
acceptable.
the discount rate that equates the present value of benefits
to the present value of costs.
Instructor Explanation:
The answer can be found in Section 7.1: Capital Budgeting
Methods.
Points Received:
1 of 1
Comments:
5.
7. Question :
Chapter 7 introduced three methods for evaluating a
corporate investment decision. Which of the following is not
one of those methods?
Student Answer:
payback period
net present value (NPV)
return on assets (ROA)
internal rate of return (IRR)
Instructor Explanation:
The answer can be found in Section 7.1: Capital Budgeting
Methods.
Points Received:
1 of 1
Comments:
6.
Question :
In perfect capital markets, the capital structure decision is:
Student Answe...
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