New Semester Started Get 50% OFF Study Help! --h --m --s Claim Now

Question Answers

Textbooks

Find textbooks, questions and answers

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Study Help
Tutors
AI Study Planner NEW
Sell Books

Search
Sign In
Register

study help
business
financial management

Fundamentals Of Financial Management 12th Edition Richard Bulliet, Eugene F Brigham, Brigham/Houston - Solutions

11-22 MIRR A project has the following cash flows:0 23$500 $202 $X $196 $350 $451 1 4 5 This project requires two outflows at Years 0 and 2, but the remaining cash flows are positive. Its WACC is 10%, and its MIRR is 14.14%. What is the Year 2 cash outflow?
11-21 MIRR Project X costs $1,000, and its cash flows are the same in Years 1 through 10. Its IRR is 12%, and its WACC is 10%. What is the project’s MIRR?
11-19 MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $2 million. Net cash inflows of $13 million would occur at the end of Year 1.The land must be returned to its natural state at a cost of $12 million, payable at the end of Year 2.a. Plot the
11-18 NPV AND IRR A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and the next payment is due in 1 month. The mall’s owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more
11-17 CAPITAL BUDGETING CRITERIA A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following net cash flows:
11-16 NPV PROFILES: SCALE DIFFERENCES A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.4 million per year for 20 years. Plan B requires a $12 million expenditure
11-15 NPV PROFILES: TIMING DIFFERENCES An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $12 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t ¼ 1 of $14.4 million. Under Plan B, cash flows would be $2.1
11-12 IRR AND NPV A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:0 2$10$800$250$250$900$0$1,000$1,000 Project S Project L 3 4$10$400 1The company’s WACC is 10%. What is the IRR of the better project? (Hint: The better project may or may not be the
11-11 CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S costs $15,000, and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive Project L costs $37,500, and its expected cash flows would be $11,100 per year for 5 years.If both projects have a WACC of 14%,
11-10 CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the following mutually exclusive projects:0 23$225$49$225$50$55$50$55$300$55$300$400$600 Project A Project B 1 4 5 Which project would you recommend? Explain.
11-9 CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause
11-7 CAPITAL BUDGETING CRITERIA A firm with a 14% WACC is evaluating two projects for this year’s capital budget. After-tax cash flows, including depreciation, are as follows:0 23$2,000$5,600$2,000$5,600$2,000$5,600$2,000$5,600$2,000$5,600$6,000$18,000 Project A Project B 1 4 5a. Calculate NPV,
11-6 NPV Your division is considering two projects with the following net cash flows (in millions):
11-5 DISCOUNTED PAYBACK Refer to Problem 11-1. What is the project’s discounted payback?
11-3 MIRR Refer to Problem 11-1. What is the project’s MIRR?
11-2 IRR Refer to Problem 11-1. What is the project’s IRR?
11-8 Project X is very risky and has an NPV of $3 million. Project Y is very safe and has an NPV of $2.5 million. They are mutually exclusive, and project risk has been properly considered in the NPV analyses. Which project should be chosen? Explain.
11-7 Why might it be rational for a small firm that does not have access to the capital markets to use the payback method rather than the NPV method?
11-6 Discuss the following statement: If a firm has only independent projects, a constant WACC, and projects with normal cash flows, the NPV and IRR methods will always lead to identical capital budgeting decisions. What does this imply about the choice between IRR and NPV? If each of the
11-5 If two mutually exclusive projects were being compared, would a high cost of capital favor the longer-term or the shorter-term project? Why? If the cost of capital declined, would that lead firms to invest more in longer-term projects or shorter-term projects? Would a decline (or an increase)
11-4 What is a mutually exclusive project? How should managers rank mutually exclusive projects?
11-2 What are three potential flaws with the regular payback method? Does the discounted payback method correct all three flaws? Explain.
11-1 How are project classifications used in the capital budgeting process?
9 Which provides a better estimate of a project’s “true” rate of return, the MIRR or the regular IRR? Explain.
6 What are the projects’ IRRs, and which one would the IRR method select if the firm had a 10% cost of capital and the projects were (a) independent or(b) mutually exclusive? (IRRSS ¼ 18.0%; IRRLL ¼ 15.6%)
5 In what sense is a project’s IRR similar to the YTM on a bond?
4 What is the single best capital budgeting decision criterion?
3 Identify the major project classification categories and explain how and why they are used.
2 What are some ways that firms generate ideas for capital projects?
Putting all this information together, what is your estimate of MMM’s WACC? How confident are you in this estimate? Explain your answer.
Next, we need to calculate MMM’s cost of debt. Unfortunately, Thomson ONE doesn’t provide a direct measure of the cost of debt. However, we can use different approaches to estimate it. One approach is to take the company’s long-term interest expense and divide it by the amount of long-term
Once again we can use the CAPM to estimate MMM’s cost of equity. Thomson ONE provides various estimates of beta—select the measure that you believe is best and combine this with your estimates of the risk-free rate and the market risk premium to obtain an estimate of its cost of equity. (See
As a first step, we need to estimate what percentage of MMM’s capital comes from long-term debt, preferred stock, and common equity. If we click on “FINANCIALS,” we can see from the balance sheet the amount of MMM’s long-term debt and common equity. (As of year-end 2007, MMM had no
10-22 COST OF CAPITAL Coleman Technologies is considering a major expansion program that has been proposed by the company’s information technology group. Before proceeding with the expansion, the company must estimate its cost of capital. Assume that you are an assistant to Jerry Lehman, the
10-20 WACC The following table gives Foust Company’s earnings per share for the last 10 years.The common stock, 7.8 million shares outstanding, is now (1/1/09) selling for $65.00 per share. The expected dividend at the end of the current year (12/31/09) is 55% of the 2008 EPS. Because investors
10-19 ADJUSTING COST OF CAPITAL FOR RISK Ziege Systems is considering the following independent projects for the coming year:Project Required Investment Rate of Return Risk A $4 million 14.0% High B 5 million 11.5 High C 3 million 9.5 Low D 2 million 9.0 Average E 6 million 12.5 High F 5 million
10-18 WACC AND OPTIMAL CAPITAL BUDGET Adams Corporation is considering four averagerisk projects with the following costs and rates of return:Project Cost Expected Rate of Return 1 $2,000 16.00%2 3,000 15.00 3 5,000 13.75 4 2,000 12.50 The company estimates that it can issue debt at a rate of rd ¼
10-17 CALCULATION OF g AND EPS Sidman Products’ common stock currently sells for $60.00 a share. The firm is expected to earn $5.40 per share this year and to pay a year-end dividend of $3.60, and it finances only with common equity.a. If investors require a 9% return, what is the expected growth
10-16 COST OF COMMON EQUITY The Bouchard Company’s EPS was $6.50 in 2008, up from$4.42 in 2003. The company pays out 40% of its earnings as dividends, and its common stock sells for $36.00.a. Calculate the past growth rate in earnings. (Hint: This is a 5-year growth period.)b. The last dividend
10-14 COST OF PREFERRED STOCK INCLUDING FLOTATION Trivoli Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for$97.00; but flotation costs will be 5% of the market price, so the net price will be$92.15 per share. What is the cost of the
10-13 COST OF COMMON EQUITY WITH FLOTATION Ballack Co.’s common stock currently sells for $46.75 per share. The growth rate is a constant 12%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 25%, and the expected return on equity (ROE) is 16%.
10-12 WACC Midwest Electric Company (MEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd ¼ 10% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend was$2, its expected constant growth
10-11 WACC AND PERCENTAGE OF DEBT FINANCING Hook Industries’ capital structure consists solely of debt and common equity. It can issue debt at rd ¼ 11%, and its common stock currently pays a $2.00 dividend per share (D0 ¼ $2.00). The stock’s price is currently $24.75, its dividend is expected
10-10 WACC Klose Outfitters Inc. believes that its optimal capital structure consists of 60%common equity and 40% debt, and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $2 million of new retained earnings with a cost of rs ¼ 12%. New
10-9 WACC The Patrick Company’s cost of common equity is 16%, its before-tax cost of debt is 13%, and its marginal tax rate is 40%. The stock sells at book value. Using the following balance sheet, calculate Patrick’s WACC.
10-8 COST OF COMMON EQUITY AND WACC Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 12%, and its marginal tax rate is 40%. The current stock price is P0 ¼ $22.50. The last dividend was D0 ¼ $2.00,
10-7 COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company’s next expected dividend, D1, is $3.18; its growth rate is 6%; and its common stock now sells for $36.00. New stock (external equity) can be sold to net $32.40 per share.a. What is Evanec’s cost of retained earnings, rs?b.
10-6 COST OF COMMON EQUITY The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 7% per year. Carpetto’s common stock currently sells for $23.00 per share; its last dividend was $2.00; and it will pay a $2.14 dividend at the end of the current
10-5 PROJECT SELECTION Midwest Water Works estimates that its WACC is 10.5%. The company is considering the following capital budgeting projects:
10-4 COST OF EQUITY WITH AND WITHOUT FLOTATION Javits & Sons’ common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D1 ¼ $3.00), and the constant growth rate is 5% a year.a. What is the company’s cost of common equity
10-3 COST OF COMMON EQUITY Percy Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company’s outstanding bonds is 9%, and its tax rate is 40%. Percy’s CFO estimates that the company’s WACC is 9.96%. What is Percy’s
10-2 COST OF PREFERRED STOCK Tunney Industries can issue perpetual preferred stock at a price of $47.50 a share. The stock would pay a constant annual dividend of $3.80 a share.What is the company’s cost of preferred stock, rp?
10-5 The WACC is a weighted average of the costs of debt, preferred stock, and common equity.Would the WACC be different if the equity for the coming year came solely in the form of retained earnings versus some equity from the sale of new common stock? Would the calculated WACC depend in any way
10-4 Suppose a firm estimates its WACC to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be “reasonable”costs of capital for average-, high-, and low-risk projects?
10-3 How should the capital structure weights used to calculate the WACC be determined?
10-2 Assume that the risk-free rate increases. What impact would this have on the cost of debt?What impact would it have on the cost of equity?
10-1 How would each of the following scenarios affect a firm’s cost of debt, rd(1 – T); its cost of equity, rs; and its WACC? Indicate with a plus (þ), a minus (–), or a zero (0) if the factor would raise, would lower, or would have an indeterminate effect on the item in question.Assume for
20. Identify some problem areas in cost of capital analysis. Do these problems invalidate the cost of capital procedures discussed in this chapter? Explain.
19. Should all divisions within the same firm use the firm’s composite WACC for evaluating all capital budgeting projects? Explain.
18. How should firms evaluate projects with different risks?
17. Why is the cost of capital sometimes referred to as a “hurdle rate”?
16. Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?
15. What are three factors under the firm’s control that can affect its cost of capital?
14. Name three factors that affect the cost of capital and that are beyond the firm’s control.
13. Suppose Firm A plans to retain $100 million of earnings for the year. It wants to finance using its current target capital structure of 46% debt, 3% preferred, and 51% common equity. How large could its capital budget be before it must issue new common stock? ($196.08 million)
12. A firm’s common stock has D1 ¼ $1.50, P0 ¼ $30.00, g ¼ 5%, and F ¼ 4%. If the firm must issue new stock, what is its cost of new external equity?(10.21%)
11. Would a firm that has many good investment opportunities be likely to have a higher or a lower dividend payout ratio than a firm with few good investment opportunities? Explain.
10. What are the two approaches that can be used to adjust for flotation costs?
9. A company’s preferred stock currently trades at $80 per share and pays a$6 annual dividend per share. Ignoring flotation costs, what is the firm’s cost of preferred stock? (7.50%)
8. Is a tax adjustment made to the cost of preferred stock? Why or why not?
7. How can the yield to maturity on a firm’s outstanding debt be used to estimate its before-tax cost of debt?
6. Why is the relevant cost of debt the interest rate on new debt, not that on already outstanding, or old, debt?
5. Why is the after-tax cost of debt rather than the before-tax cost used to calculate the WACC?
4. If a firm now has a debt ratio of 50% but plans to finance with only 40%debt in the future, what should it use as wd when it calculates its WACC?
3. Which one is generally relevant, and for what type of firm is the second one likely to be relevant?
2. Why might there be two different component costs for common equity?
Finally, you can also use the information in Thomson ONE to value the entire corporation. This approach requires that you estimate XOM’s annual free cash flows. Once you estimate the value of the entire corporation, you subtract the value of debt and preferred stock to arrive at an estimate of
On the basis of the dividend history you uncovered in Question 6 and your assessment of XOM’s future dividend payout policies, do you think it is reasonable to assume that the constant growth model is a good proxy for intrinsic value? If not, how would you use the available data in Thomson ONE to
It is often useful to perform a sensitivity analysis, where you show how your estimate of intrinsic value varies according to different estimates of D1, rs, and g. To do so, recalculate your intrinsic value estimate for a range of different estimates for each of these key inputs. One convenient way
The required return on equity, rs, is the final input needed to estimate intrinsic value. For our purposes, you can assume a number (say, 8% or 9%) or you can use the CAPM to calculate an estimate of the cost of equity using the data available in Thomson ONE. (For more details, look at the Thomson
In the text, we discussed using the discounted dividend model to estimate a stock’s intrinsic value. To keep things as simple as possible, let’s assume at first that XOM’s dividend is expected to grow at some constant rate over time. If so, the intrinsic value equals D1/(rs – g), where D1
To put the firm’s current P/E ratio in perspective, it is useful to compare this ratio with that of other companies in the same industry. To see how XOM’s P/E ratio stacks up to its peers, click on “COMPARABLES” (left-hand side of your screen). Select “KEY FINANCIAL RATIOS.” Toward the
To put XOM’s P/E ratio in perspective, it is useful to see how this ratio has varied over time. Scroll down to the Stock Performance section of this screen. The first two lines of this section show the firm’s P/E ratio using the end-of-year closing price and the 5-year average over time. Is
To provide a starting point for gauging a company’s relative valuation, analysts often look at a company’s price-to-earnings (P/E) ratio. Return to the COMPANY OVERVIEW page. Here you can see XOM’s forward P/E ratio, which uses XOM’s next 12-month estimate of earnings in the calculation. To
Click on “NEWS & EVENTS” on the left-hand side of your screen to see the company’s recent news stories for the company. Have there been any recent events impacting the company’s stock price, or have things been relatively quiet?
For purposes of this exercise, let’s take a closer look at the stock of ExxonMobil Corporation (XOM). Looking at the COMPANY ANALYSIS OVERVIEW, we can see the company’s current stock price and its performance relative to the overall market in recent months. What is ExxonMobil’s current stock
9-23 STOCK VALUATION Robert Balik and Carol Kiefer are senior vice presidents of the Mutual of Chicago Insurance Company. They are codirectors of the company’s pension fund management division, with Balik having responsibility for fixed-income securities (primarily bonds) and Kiefer being
9-21 NONCONSTANT GROWTH Assume that it is now January 1, 2009. Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, WME is expected to experience a 15% annual growth rate for the
9-20 CORPORATE VALUE MODEL Assume that today is December 31, 2008, and that the following information applies to Vermeil Airlines:l After-tax operating income [EBIT(1 – T)] for 2009 is expected to be $500 million.l The depreciation expense for 2009 is expected to be $100 million.l The capital
9-19 CORPORATE VALUATION Barrett Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Barrett does not pay any dividends and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing
9-18 NONCONSTANT GROWTH STOCK VALUATION Taussig Technologies Corporation (TTC)has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to gn ¼ 6%.a. If D0 ¼ $1.60 and rs ¼ 10%, what is TTC’s stock worth today? What
9-17 CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen’s dividend is expected to grow at 5% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The
9-15 CORPORATE VALUATION Dozier Corporation is a fast-growing supplier of office products.Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 7% rate. Dozier’s WACC is 13%. 9-16 NONCONSTANT GROWTH Mitts Cosmetics Co.’s
9-14 NONCONSTANT GROWTH Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.00 coming 3 years from today. The dividend should
9-13 CONSTANT GROWTH You are considering an investment in Keller Corp’s stock, which is expected to pay a dividend of $2.00 a share at the end of the year (D1 ¼ $2.00) and has a beta of 0.9. The risk-free rate is 5.6%, and the market risk premium is 6%. Keller currently sells for $25.00 a share,
9-12 VALUATION OF A CONSTANT GROWTH STOCK Investors require a 15% rate of return on Levine Company’s stock (that is, rs ¼ 15%).a. What is its value if the previous dividend was D0 ¼ $2 and investors expect dividends to grow at a constant annual rate of (1) –5%, (2) 0%, (3) 5%, or (4) 10%?b.
9-11 VALUATION OF A CONSTANT GROWTH STOCK A stock is expected to pay a dividend of$0.50 at the end of the year (that is, D1 ¼ 0.50), and it should continue to grow at a constant rate of 7% a year. If its required return is 12%, what is the stock’s expected price 4 years from today?
9-10 VALUATION OF A DECLINING GROWTH STOCK Martell Mining Company’s ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company’s earnings and dividends are declining at the constant rate of 5% per
9-9 PREFERRED STOCK RETURNS Bruner Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2, and its current price is $80.a. What is its nominal annual rate of return?b. What is its effective annual rate of return?
9-4 NONCONSTANT GROWTH VALUATION Hart Enterprises recently paid a dividend, D0, of$1.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm’s required return is 10%.a. How far away is the terminal, or horizon, date?b. What is the

Showing 1300 - 1400 of 4135

First
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Last

Step by Step Answers

Services

Sitemap
Fun
Definitions
Become Tutor
Used Textbooks
Study Help Categories
Recent Questions
Expert Questions
Campus Wear
Sell Your Books

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship
Online Quiz
Give Feedback, Get Rewards

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Student Discount
Campus Ambassador

Secure Payment

Download Our App

© 2026 SolutionInn. All Rights Reserved