Question 1 3.34 pts You are in the financial planning and analysis department evaluating a new...

Transcribed Image Text:

Question 1 3.34 pts You are in the financial planning and analysis department evaluating a new capital project. The project is considered to have a high level of risk. The company's weighted cost of capital is 11.5%. When preparing an NPV on the project you would use a required rate of return: Equal to the weighted cost of capital Below the weighted cost of capital Above the weighted cost of capital Question 2 3.34 pts Nalco Corp. is a manufacturer of an industrial water pump. The pump sells for $90.00 each and has variable manufacturing costs of $55.00. For the year the company sold 61,000 units, had $425,000 of cash fixed costs and depreciation expense of $125,000. How many units did the company have to sell to break-even on a cash basis? Question 3 3.34 pts Pinnacle Corp. has 5 million outstanding shares of common stock which has a beta of 1.05. The current market price is $20 per share and the book value per share is $12. It has a bond issue outstanding with a face $50 million which currently trades at a premium price of 110. Its coupon rate is 6.0% and has a yield to maturity of 5.25%. If you were asked to calculate the weighted cost of capital what market weights would you use? Equity of 64.5% and debt of 35.5% Equity of 66.7% and debt of 33.3% Equity of 52.2% and debt of 47.8% Equity of 54.5% and debt of 45.5% Question 4 3.34 pts You are preparing a discounted free cash flow analysis for Lock Inc. For year 1 of the projection period Lock Inc. expects EBITDA of $570,000, depreciation and amortization of $35,000, outstanding debt of $150,000, capital expenditures of $50,000, an increase in working capital of $15,000, 115,000 shares outstanding, cash of $15,000 and a tax rate of 25%. What would be the free cash flow for Lock Inc. in Year 1? $401,250 $471,250 $336,250 $371,250 Question 5 3.34 pts UEX Corp.'s management has decided to repurchase some of the company's shares. The company has 1,500,000 shares outstanding that trade at $25.00 per share and book value equity of $37,500,000. It plans to repurchase 800,000 shares at $25.00 and will use debt to finance the purchase at an interest rate of 8.0%. The company's EBIT is $4,000,000. Ignoring income taxes, what is the breakeven EBIT (the EBIT level where pre and post repurchase EPS and ROE are the same)? Question 6 3.34 pts Idec Corp. just paid a dividend of $2.50 per share. Management has stated that they plan to make annual dividend increases of 3.0% indefinitely. Investors require a rate of return on Idec's stock of 11.0%. What is Idec's current stock price (go to 2 decimal places)? Question 7 3.34 pts NewCo Inc. is evaluating a capital project using the net present value method. The project has an initial cash outflow of $835,000 and the annual after-tax cash inflows for the project are below. For capital projects management requires a rate of return of 9.5%. Cash inflows are as follows: year 1 $125,000, year 2 $150,000, year 3 $175,000, year 4 $200,000 year 5 $225,000, year 6 $175,000, and year 7 $125,000. What is the net present value of the project? ($42,910) $1,274 ($12,669) $9,012 Question 8 3.34 pts Melco Corp. has assets of $1,000,000, equity of $402,500 and net income of $75,000. It paid dividends of $22,500. What is the company's sustainable growth rate? Question 9 3.34 pts VM Materials Inc. management has decided to repurchase some of the company's shares. The company has 2,000,000 shares outstanding that trade at $15.00 per share and has stockholders' equity of $10,500,000. It plans to repurchase 200,000 shares at $15.00 and will use debt to finance the purchase at an interest rate of 6.0%. The company's EBIT is $1,500,000. Ignoring income taxes what is the return on equity before and after the repurchase? 14.3% before and 20.3% after 14.6% before and 17.6% after O 14.3% before and 17.6% after 14.3% before and 24.0% after Question 10 3.34 pts ChexPro Corporation is considering an expansion project that requires an initial fixed asset investment of $2,750,000. The fixed assets will be depreciated over 5 years using straight-line (not MACRS) with no residual value. The project will generate annual sales of $3,190,000, cash costs of $2,365,000 (costs DO NOT include depreciation expense) and the tax rate is 25%. What is the annual operating cash flow of the project? $825,000 $756,250 $725,250 $206,250 Question 1 3.34 pts You are in the financial planning and analysis department evaluating a new capital project. The project is considered to have a high level of risk. The company's weighted cost of capital is 11.5%. When preparing an NPV on the project you would use a required rate of return: Equal to the weighted cost of capital Below the weighted cost of capital Above the weighted cost of capital Question 2 3.34 pts Nalco Corp. is a manufacturer of an industrial water pump. The pump sells for $90.00 each and has variable manufacturing costs of $55.00. For the year the company sold 61,000 units, had $425,000 of cash fixed costs and depreciation expense of $125,000. How many units did the company have to sell to break-even on a cash basis? Question 3 3.34 pts Pinnacle Corp. has 5 million outstanding shares of common stock which has a beta of 1.05. The current market price is $20 per share and the book value per share is $12. It has a bond issue outstanding with a face $50 million which currently trades at a premium price of 110. Its coupon rate is 6.0% and has a yield to maturity of 5.25%. If you were asked to calculate the weighted cost of capital what market weights would you use? Equity of 64.5% and debt of 35.5% Equity of 66.7% and debt of 33.3% Equity of 52.2% and debt of 47.8% Equity of 54.5% and debt of 45.5% Question 4 3.34 pts You are preparing a discounted free cash flow analysis for Lock Inc. For year 1 of the projection period Lock Inc. expects EBITDA of $570,000, depreciation and amortization of $35,000, outstanding debt of $150,000, capital expenditures of $50,000, an increase in working capital of $15,000, 115,000 shares outstanding, cash of $15,000 and a tax rate of 25%. What would be the free cash flow for Lock Inc. in Year 1? $401,250 $471,250 $336,250 $371,250 Question 5 3.34 pts UEX Corp.'s management has decided to repurchase some of the company's shares. The company has 1,500,000 shares outstanding that trade at $25.00 per share and book value equity of $37,500,000. It plans to repurchase 800,000 shares at $25.00 and will use debt to finance the purchase at an interest rate of 8.0%. The company's EBIT is $4,000,000. Ignoring income taxes, what is the breakeven EBIT (the EBIT level where pre and post repurchase EPS and ROE are the same)? Question 6 3.34 pts Idec Corp. just paid a dividend of $2.50 per share. Management has stated that they plan to make annual dividend increases of 3.0% indefinitely. Investors require a rate of return on Idec's stock of 11.0%. What is Idec's current stock price (go to 2 decimal places)? Question 7 3.34 pts NewCo Inc. is evaluating a capital project using the net present value method. The project has an initial cash outflow of $835,000 and the annual after-tax cash inflows for the project are below. For capital projects management requires a rate of return of 9.5%. Cash inflows are as follows: year 1 $125,000, year 2 $150,000, year 3 $175,000, year 4 $200,000 year 5 $225,000, year 6 $175,000, and year 7 $125,000. What is the net present value of the project? ($42,910) $1,274 ($12,669) $9,012 Question 8 3.34 pts Melco Corp. has assets of $1,000,000, equity of $402,500 and net income of $75,000. It paid dividends of $22,500. What is the company's sustainable growth rate? Question 9 3.34 pts VM Materials Inc. management has decided to repurchase some of the company's shares. The company has 2,000,000 shares outstanding that trade at $15.00 per share and has stockholders' equity of $10,500,000. It plans to repurchase 200,000 shares at $15.00 and will use debt to finance the purchase at an interest rate of 6.0%. The company's EBIT is $1,500,000. Ignoring income taxes what is the return on equity before and after the repurchase? 14.3% before and 20.3% after 14.6% before and 17.6% after O 14.3% before and 17.6% after 14.3% before and 24.0% after Question 10 3.34 pts ChexPro Corporation is considering an expansion project that requires an initial fixed asset investment of $2,750,000. The fixed assets will be depreciated over 5 years using straight-line (not MACRS) with no residual value. The project will generate annual sales of $3,190,000, cash costs of $2,365,000 (costs DO NOT include depreciation expense) and the tax rate is 25%. What is the annual operating cash flow of the project? $825,000 $756,250 $725,250 $206,250