BUSINESS FINANCE (2168) FINAL EXAMINATION

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%.

Calculate the firm’s WACC adjusted for taxes using the market information in the table.

Round the answers to two decimal places in percentage form.  (Write the percentage sign in the “units” box)

	The Number of Securities Outstanding	Selling price	The Required Rate of Return
Bonds	1,407	$1,191	11.18%
Preferred Stocks	5,418	$54.71	16.81%
Common Stocks	1,383	$66.58	12.81%

 

Question 2

1 / 1 point

Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company’s project, assuming the company’s cost of capital is 8.42 percent. The initial outlay for the project is $307,089. The project will produce the following after-tax cash inflows of

Year 1: 126,050

Year 2: 91,170

Year 3: 28,946

Year 4: 194,652

Round the answer to two decimal places.

Question 3

1 / 1 point

What is the yield to call of a 30-year to maturity bond that pays a coupon rate of 10.65 percent per year, has a $1,000 par value, and is currently priced at $945? The bond can be called back in 4 years at a call price $1,086. Assume annual coupon payments.

Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)

You should use Excel or financial calculator.

Question 4

1 / 1 point

Find the modified internal rate of return (MIRR) for the following series of future cash flows if the company is able to reinvest cash flows received from the project at an annual rate of 11.87 percent.The initial outlay is $390,200.

Year 1: $158,700

Year 2: $164,600

Year 3: $167,700

Year 4: $133,700

Year 5: $184,100

Round the answer to two decimal places in percentage form. (Write the percentage sign in the “units” box)

Cost of new equity Gordon Model

 

Question 5

1 / 1 point

Calculate the cost of new common equity financing of stock R using Gordon Model

Round the answers to two decimal places in percentage form. (Write the percentage sign in the “units” box)

 

	Last Year Dividend	Growth Rate of Dividends	Selling Price of Stock	Floatation Costs	Cost of Common Equity
Stock R	$2.82	2.8%	$67.38	$2.50	?

.

Yield to Maturity of bond, annually

 

Question 6

1 / 1 point

What is the yield to maturity of a 29-year bond that pays a coupon rate of 12.61 percent per year, has a $1,000 par value, and is currently priced at $1,417? Assume annual coupon payments.

Round the answers to two decimal places in percentage form. (Write the percentage sign in the “units” box).

You should use Excel or financial calculator.

Value of preferred stock, expected rate of return on preferred stock, Required rate of return using CAPM

 

Question 7

1 / 1 point

Giant Co. has just issued preferred stock with a par value of $100 and an annual dividend rate of 9.08 percent. If your required rate of return is 8.34 percent, how much will you be willing to pay for one share of this preferred stock?

Round the answer to two decimal places.

Payback period, discounted payback period

 

Question 8

1 / 1 point

Find the Discounted Payback period for the following project. The discount rate is 10%

	Project X
Initial Outlay	$17,559
Year 1	$5,049
Year 2	$5,966
Year 3	$5,776
Year 4	$8,719

Round the answer to two decimal places.

Value (price) of bond, annually

 

Question 9

1 / 1 point

Fresh Water, Inc. sold an issue of 18-year $1,000 par value bonds to the public. The bonds have a 9.22 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Water, Inc. bonds is 8.25 percent. What is the current market price of the bonds?

Round the answer to two decimal places.

Yield to Maturity of bond, semi-annually

 

Question 10

1 / 1 point

A few years ago, Spider Web, Inc. issued bonds with a 11.42 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $742, and will mature in 22 years. What would the annual yield to maturity be on the bond if you purchased the bond today?

 

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