Reference no: EM133056410
1. Consider the following company,
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Book Value of Debt
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$50 million
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YTM
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10%
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Coupon
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7%
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Coupon Payments
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semi-annually
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Years
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20
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Corporate Tax Rate
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33%
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# of Preferred Shares
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2 million
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Price of Preferred Share
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$25
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Dividend per Preferred Shares
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$1.33
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# of Common Shares
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9.5 million
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Price of Common Share
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$19
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β of Common Stock
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1.3
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Risk-Free Rate
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4%
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Market Return
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10%
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What is the market value of the debt? Enter your answer in terms of millions and rounded to 2 DECIMAL PLACES.
Enter your response below. Million
2. Consider a firm that has a debt-equity ratio of 1/3. The rate of return for debt is 8% and the rate of return for equity is 14%. The corporate tax rate is 39%. What is the weighted average cost of capital? Enter your answer as a percentage and rounded to 2 DECIMAL PLACES. Do not include the percentage sign in your answer.
Enter your response below. %
3. Peaceful Cruises wants to build a new cruise ship that has an initial investment of $500 million. It is estimated to provide an annual cash flow over the next 10 years of $71 million per year. The discount rate is 6%.
What is the discounted payback period? Enter your answer rounded to two decimal places
4. Suppose a company had an initial investment of $40,000. The cash flow for the next five years are $12,000, $10,000, $15,000, $13,000, and $11,000, respectively.
What is the payback period? (Enter your answer rounded to 2 DECIMAL PLACES)
If the firm accepts projects with payback periods of less than 4 years, will this project be accepted?
Yes or No
5. Suppose a company had an initial investment of $45,000. The cash flow for the next five years are $18,000, $14,000, $20,000, $20,000, and $19,000, respectively. The interest rate is 10%. Enter your answer rounded to 2 DECIMAL PLACES.
What is the discounted payback period?
If the firm requires a discounted payback periods 3 years or less, will the project be accepted?
Yes or No