1.
Genaro needs to capture a return of 40 percent
for his one-year investment in a property. He believes that he can sell the
property at the end of the year for $150,000 and that the property will provide
him with rental income of $25,000. What is the maximum amount that Genaro
should be willing to pay for the property?
2.
The process of identifying the bundle of
projects that creates the greatest total value and allocating the available
capital to the projects is known as
3.
You are considering a project that has an
initial cost of $1,200,000. If you take the project, it will produce net cash
flows of $300,000 per year for the next six years. If the appropriate discount
rate for the project is 10 percent, what is the profitability index of the
project?
4.
What might cause a firm to face capital
rationing?
5.
The WACC for a firm is 19.75 percent. You know
that the firm is financed with $75 million of equity and $25 million of debt.
The cost of debt capital is 7 percent. What is the cost of equity for the firm?
6.
Bellamee, Inc., has semiannual bonds outstanding with
five years to maturity and are priced at $920.87. If the bonds have a coupon
rate of 7 percent, then what is the YTM for the bonds?
7.
Beckham Corporation has semiannual bonds
outstanding with 13 years to maturity and are currently priced at $746.16. If
the bonds have a coupon rate of 8.5 percent, then what is the after-tax cost of
debt for Beckham if its marginal tax rate is 35%? Assume that your calculation
is made as on Wall Street.
8.
RadicalVenOil, Inc., has a cost of equity
capital equal to 22.8 percent. If the risk-free rate of return is 10 percent
and the expected return on the market is 18 percent, then what is the firm’s
beta if the firm’s marginal tax rate is 35 percent?
9.
Which type of project do financial managers
typically use the highest cost of capital when evaluating?
