Jack Ltd is looking at a project that will require $80,000 in fixed assets. The project is expected to produce cash sales of $110,000 with associated cash costs of $70,000. The project has a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the annual operating cash flow for this project?

a.$28,000

b.$44,000

c.$32,800

d.$40,000

Jack Ltd wants to have a weighted average cost of capital of 10 percent. The firm has an aftertax cost of debt of 6 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve the target weighted cost of capital?

a.0.50

b.0.33

c.0.67

d.0.25

The interest tax shield has no value for a firm when

a.The firm's debt-equity ratio is below 1

b.The firm's debt-equity ratio is above 1

c.The firm's debt-equity ratio is exactly equal to 1

d.The firm is unlevered

Stock prices will rise when dividends are increased provided that the dividend increase

a.Is substantial in both dollar amount and percentage terms

b.Causes stockholders to increase their expectations of future cash flows

c.Is greater than the average historical dividend increase

d.Is denoted as a one-time event

Jack Ltd is an all-equity firm that has 280,000 shares of stock outstanding. The company is in the process of borrowing $2.4 million at 5.5 percent interest to repurchase 75,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?

a.$9,240,000

b.$10,710,000

c.$8,960,000

d.$12,500,000