Reference no: EM132803342

1. Romeo Inc. has a debt equity ration of 2, a share price of $5, and 500,000 shares outstanding. What is romeo's market firm value?

2. Sierra Corporation has just paid a dividend of $2 per share, and its dividends are expected to grow at a steady rate of 6% for the foreseeable future. The firms shares are currently selling for $30 per share, with an equity beta of 1.2. the risk free rate is 5% and expected market return is 12%. What is the firms estimated cost of equity if we were to calculate it as the average of the costs of equity from the dividend growth model and the security market line?

3. Tango enterprises has issued 100,000 coupon bonds, with maturity of eight years. Each bond sells for $1,075. The bonds pay semi-annual coupons of 9% on face value of $1000. What is Tango's cost of debt?

4. An issue of preferred shares has a par value of $150 per share, with a dividend on par of 8%. If preferred shares are currently selling for $95 per share, what is the percentage cost of preferred shares?

5. Unbelievable deals inc has the following capital structure and marginal tax rate of 35%. What is its WACC?

Debt: 100,000 coupon bonds; eight year maturity; face value of $1000; semi-annual coupon rate of 9%; bond price of $1,075

Common shares: risk free rate = 5%; expected market risk premium = 7%; beta = 1.2; number of common shares = 3,000,000; common share price = $30

Preferred shares: par value = $150; Dividends = $12; share price = $95; number of preferred shares = 100,000

6. Van Bran inc is looking into financing a %30 million project with an equity issue. If the firm's underwriter charges a spread (ie. Underwriting fee) of 6% on equity issues, what is the gross amount that must be raised in Van Bran's equity issue?

7. Walter Inc had net income of $650,000, debt equity ratio of 1, book value of assets of $5 million, and 1,000,000 common shares outstanding. The company just paid a dividend per share of $0.5. What is Walter's estimated growth rate?

8. X-tra Ltd. Has a firm wide WACC of 10%. However, it uses project's unique risk and WACC in its capital budgeting decisions. What is this decision making approach is called?

9. A firm is anticipated to generate an EBIT of $2 million, with depreciation of $200,000, change in NWC of $120,000, and capital spending of $350,000 per year. The firm's marginal tax rate is 40%. What is the firm's annual adjusted cash flow from assets without debt financing?

10. What does the cost of capital associated with a project depend on?