devry fin515 full course [ all week discussions all week homework both exams and both course project]

Complete the Problem 11-7 “New-Project Analysis” (p. 460) and detail your work in the answer to each question in a Word or Excel document named “FIN515_W5_Project_yourname.” The project is graded and worth 35 points.

Submit your assignment to the Dropbox located on the silver tab at the top of this page.

week 7

Project

Complete the Problem 13-10 Corporate Valuation on pages 551-552 in a Word or Excel document named “FIN515_W7_Project_yourname“. Show the details of your calculation/work in your answer to the Problem.

Submit your project to the Dropbox located on the silver tab at the top of this page.

exams

TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?

$23.11

$23.70

$24.31

$24.93

$25.57

Question 2. Question :

(TCO D) If D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock’s expected capital gains yield for the coming year?

6.50%

6.83%

7.17%

7.52%

7.90%

Comments:

Question 3. Question :

(TCO D) Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell?

$104.27

$106.95

$109.69

$112.50

CORRECT $115.38

Question 4. Question :

(TCO E) Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

Increase the dividend payout ratio for the upcoming year.

Increase the percentage of debt in the target capital structure.

Increase the proposed capital budget.

Reduce the amount of short-term bank debt in order to increase the current ratio.

Reduce the percentage of debt in the target capital structure.

Question 5. Question :

(TCO E) If a typical U.S. company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely

become riskier over time, but its intrinsic value will be maximized.

become less risky over time, and this will maximize its intrinsic value.

accept too many low-risk projects and too few high-risk projects.

become more risky and also have an increasing WACC. Its intrinsic value will not be maximized.

continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.

Question 6. Question :

(TCO D) Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach?

9.42%

9.91%

10.44%

10.96%

11.51%

Question 7. Question :

(TCO F) Barry Company is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected.

WACC: 12.00%

Year 0 1 2 3 4 5

———————————————————————–

Cash flows -$1,100 $400 $390 $380 $370 $360

: $250.15

$277.94

$305.73

$336.31

$369.94

Question 8. Question :

(TCO F) Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s IRR can be less than the WACC (and even negative), in which case it will be rejected.

Question 9. Question :

(TCO F) Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback?

WACC: 10.00%

Year 0 1 2 3

———————————————

Cash flows -$900 $500 $500 $500

: 1.88 years

2.09 years

2.29 years

2.52 years

2.78 years

Payback = 2.09 years – – – 2.09

Question 10. Question :

(TCO H) Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a three-year tax life, would be depreciated by the straight-line method over its three-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project’s three-year life. What is the project’s NPV?

Risk-adjusted WACC

Net investment cost (depreciable basis)

Straight-line deprec. rate

Sales revenues, each year

Operating costs (excl. deprec.), each year

Tax rate 10.0%

$65,000

33.333%

$65,500

$25,000

35.0%

a. $15,740

b. $16,569

c. $17,441

d. $18,359

e. $19,325

Indicate your choice for your answer – a,b,c,d,e first and then show your work/explain your answer so as to earn partial credit in the event you selected the incorrect answer.

TCO A) Which of the following statements is CORRECT? Question 2. Question : (TCO G) A security analyst obtained the following information from Prestopino Products’ financial statements: • Retained earnings at the end of 2009 were $700,000, but retained earnings at the end of 2010 had declined to $320,000. • The company does not pay dividends. • The company’s depreciation expense is its only non-cash expense; it has no amortization charges. • The company has no non-cash revenues. • The company’s net cash flow (NCF) for 2010 was $150,000. On the basis of this information, which of the following statements is CORRECT? Points Received: 10 of 10 Comments: Question 3. Question : (TCO G) An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business? Points Received: 10 of 10 Comments: Question 4. Question : (TCO B) You want to buy a new sports car three years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the third deposit, three years from now? Points Received: 10 of 10 Comments: Question 5. Question : (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%? Years: 0 1 2 3 4 |———–|————–|————–|————–| CFs: $0 $1,000 $2,000 $2,000 $2,000 Question 6. Question : (TCO B) Farmers Bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly. Merchants Bank offers to lend you the $50,000, but it will charge 6.0%, simple interest, with interest paid at the end of the year. What’s the difference in the effective annual rates charged by the two banks? Points Received: 10 of 10 Comments: Question 7. Question : (TCO D) Which of the following statements is CORRECT? Question 8. Question : (TCO D) Garvin Enterprises’ bonds currently sell for $1,150. They have a six-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield? Student Answer: 8.15% 8.56% 8.98% Points Received: 10 of 10 Comments: Question 9. Question : (TCO C) Keys Corporation’s five-year bonds yield 7.00%, and five-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for five-year bonds is IP = 1.75%, the liquidity premium for Keys’ bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) x 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys’ bonds? Points Received: 10 of 10 Comments: Question 10. Question : (TCO C) Which of the following statements is CORRECT? Student Answer: The slope of the SML is determined by the value of beta. The SML shows the relationship between companies’ required returns and their diversifiable risks. The slope and intercept of this line cannot be influenced by a firm’s managers, but the position of the company on the line can be influenced by its managers. If investors become less risk averse, the slope of the Security Market Line will increase. If a company increases its use of debt, this is likely to cause the slope of its SML to increase, indicating a higher required return on the stock.