Reference no: EM131988708

Part A -

Question 1: Benskin Corporation's capital structure consists of $600,000 of assets and $325,000 of liabilities. The average interest rate on Benskin's debt is 10% and the stockholders desire a 15% return. What is Benskin's cost of capital?

Question 2: A factory costs $400,000. You reckon that it will produce an inflow after operating costs of $100,000 in year 1, $200,000 in year 2, and $300,000 in year 3. The cost of capital is 12 percent. Calculate the NPV.

Question 3: A factory costs $400,000. You reckon that it will produce an inflow after operating costs of $150,000 in year 1, $150,000 in year 2, and $150,000 in year 3. The cost of capital is 12 percent. Calculate the NPV.

Question 4: Christy's Charities, a not-for-profit entity, is considering the acquisition of a computer system to record donations and distributions more efficiently. The computer system will cost $12,000 plus installations costs of $2,000. Christy estimates it will save $4,200 a year in clerical costs for the next five years. What is the net present value of this investment using a 10% hurdle rate? Should Christy buy the computer system?

Part B -

Question 1: Richard and Liz are in a partnership and have agreed to share profits and losses in a ratio of 4:6; respectively. Determine how much their capital will increase or decrease if the partnership has

(a) Net income of $65,000

(b) Net loss of $62,000

Question 2: In their partnership agreement, Justin, Sarah, and Betsy agreed that Justin should receive a salary allowance of $35,000 per year and that Sarah should receive a salary allowance of $30,000 per year. Any remainder is divided equally among the three partners. How much should each partner's capital change if the partnership generates:

(a) Net income of $95,000

(b) Net income of $47,000

(c) Net loss of $28,000

Question 3: Larry, Mo, and Curly have agreed to allocate profits and losses as follow: 10 percent interest on beginning capital and the remainder allocated equally. The beginning capital amounts are Larry, $120,000; Mo, $60,000; and Curly, $80,000. How much should each partner's capital change if the partnership generates:

(a) Net income of $95,000

(b) Net income of $47,000

(c) Net loss of $28,000

Question 4: Edgerly, Inc. has 500,000 shares of common stock issued and outstanding with a $0.50 par value. If Edgerly declares a two-for-one stock split, how many new shares will be issued, what will the par value be, and what will the legal capital of the corporation be?

Question 5: Washington Corporation has 2,000,000 shares of common stock issued and outstanding with a $1.50 par value. If Washington declares a one-for-four reverse stock split, how many shares will be issued and outstanding and what will the par value be after the split?

Question 6: The board of directors of Chavez, Inc. is contemplating a dividend of $400,000. The corporation had 40,000 shares of 6 percent, $50 par value cumulative preferred stock outstanding. There were 200,000 shares of $2 par value common stock outstanding at the time Chavez, Inc. declared dividends. Determine the dividends the preferred and common stockholders will receive if the preferred stock is one year in arrears.