Reference no: EM133031017

Questions -

Q1) Tangshan Mining is considering issuing long- term debt. The debt would have a 30 year maturity and a 12 percent coupon rate and make semiannual coupon payments. In order to sell the issue, the bonds must be underpriced at a discount of 2.5 percent of face value. In addition, the firm would have to pay flotation costs of 2.5 percent of face value. The firm's tax rate is 33 percent. Given this information, the after tax cost of debt for Tangshan Mining would be?

A) 6.38%.

B) 4.98%.

C) 12.76%.

D) 8.47.

Q2) The approximate after- tax cost of debt for a 20- year, 7 percent, $1,000 par value bond selling at $960 (assume a marginal tax rate of 40 percent) is

A) 4.43 percent.

B) 7 percent.

C) 7.35 percent.

D) 5.15percent.

Q3) Tangshan Mining is considering issuing preferred stock. The preferred stock would have a par value of $75, and a 5.50 percent dividend. What is the cost of preferred stock for Tangshan if flotation costs would amount to 5.5 percent of par value?

A) 5.82%

B) 5.27%

C) 5.50%

D) 7.73%

Q4) A firm has a beta of 1.2. The market return equals 14 percent and the risk- free rate of return equals 6 percent. The estimated cost of common stock equity is

A) 14 percent.

B) 6 percent.

C) 7.2 percent.

D) 15.6 percent.

Q5) A firm has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year. The growth rate in dividends has been 5 percent. The cost of the firm's common stock equity is

A) 5 percent.

B) 8 percent.

C) 13 percent.

D) 10 percent.

Q6) What is the IRR for the following project if its initial after tax cost is $5,000,000 and it is expected to provide after- tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and $1,300,000 in year 4?

A) 13.57%

B) 0.00%

C) 15.57%

D) None of the above A