BUS 401 Week 3, Quiz 3
BUS 401 Week 3, Quiz 3
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This 0 page Study Guide was uploaded by kimwood Notetaker on Friday November 13, 2015. The Study Guide belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 14 views.
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Date Created: 11/13/15
Grade Details 1 2 3 Question Student Answer Points Received Comments Question Student Answer Points Received Comments Question Jiffy Wax Corp Can sell common stock for 15 per share and its investors require a 14 return However the administrative or flotation costs associated with selling the stock amount to 240 per share What is the cost of capital for Jiffy Wax if the corporation raises money by selling preferred stock 3000 F 21 50 F 1667 if 1400 F 1 of 1 Kinslow Manufacturing Company paid a dividend yesterday of 250 per share The dividend is expected to grow at a constant rate of 5 per year The price of Kinslow s common stock today is 25 per share If Kinslow decides to issue new common stock flotation costs will equal 200 per share Key s marginal tax rate is 34 Based on the above information the cost of retained earnings is 1614 F 1550 F 1500 F 1055 ET 1 of 1 Nickel Industries is considering the purchase of a new machine that will cost 178000 plus an additional 12000 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 85000 per year and is expected to increase operating costs by 10000 annually Nickel s income tax rate is 40 What is the projected incremental cash flow of the machine or year 1 Student Answer 54800 if 60200 aquot if 66350 if 68200 if Points Received 1 of1 Comments 4 Question Nargo Inc Wants to replace a 7 year old machine with a new machine that is more efficient The old machine cost 50000 when new and has a current book value of 10000 Margo can sell the machine to a foreign buyer for 12000 Margo s tax rate is 30 The effect of the sale of the old machine on the initial outlay for the new machine is Student Answer 12600 if 11400 1quot 8400 if 0 a r Points Received 0 of 1 Comments 5 Question A capital budgeting project has a net present value of 10000 and a modified internal rate of return of 13 The project39s required rate of return is 11 The internal rate of return is Student Answer Greater than 13 atquot 2 if Less than 11 LET Between 11 and 13 ET Less than 10000 Points Received 1 of 1 Comments 6 Question Higgins Office Corp Plans to maintain its optimal capital structure of 40 percent debt 10 percent preferred stock and 50 percent common equity indefinitely The required return on each component source of capital is as follows debt 8 percent preferred stock 12 percent common equity 16 percent Assuming a 40 percent marginal tax rate what after tax rate of exchange must Higgins Office Corp Earn on its investments if the value of the firm is to remain unchanged Student Answer 1240 percent 1200 percent 1112 percent 1064 percent Points Received 1 of 1 Comments 7 Question Zellar s Inc Is considering two mutually exclusive projects A and B Project A costs 75000 and is expected to generate 48000 in year one and 45000 in year two Project B costs 80000 and is expected to generate 34000 on year one 37000 in year two 26000 in year three and 25000 in year four Zellar lnc s required rate of return for these projects is 10 The internal rate of return for Project B is Student Answer 2674 2079 1864 1677 Points Received 1 of 1 Comments 8 Question A new machine can be purchased for 1000000 It will cost 65000 to ship and 35000 to modify the machine A 30000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm which would have otherwise been sold for 150000 The firm will borrow 750000 to finance the acquisition Total interest expense for 5 years is expected to approximate 9 10 Student Answer Points Received Comments Question Student Answer Points Received Comments Question Student Answer 250000 What is the investment cost of the machine for capital budgeting purposes 1100000 1 quot 1250000 ti 1280000 1 quot 1530000 1 quot 2030000 1 quot 1 of 1 Zellar s Inc Is considering two mutually exclusive projects A and B Project A costs 75000 and is expected to generate 48000 in year one and 45000 in year two Project B costs 80000 and is expected to generate 34000 on year one 37000 in year two 26000 in year three and 25000 in year four Zellar lnc s required rate of return for these projects is 10 The profitability index for Project B is 156 itquot 141 1quot 129 1quot 123 it 1 of 1 Jones Company has a target capital structure of 40 debt 10 preferred stock and 50 common equity The company s after tax cost of debt is 8 its cost of preferred debt is 10 its cost of retained earnings is 14 and its cost of new common stock is 16 The company stock has a beta of 12 and the company s marginal tax rate is 35 What is the company s weighted average cost of capital if retained earnings are used to fund the common equity portion 1 120 672 if 1680 F 800 if Points Received 1 of 1 Comments
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