Reference no: EM132258176
Questions: 1. Your company wants to raise $10 million by issuing 20- year zero- coupon bonds. If yield to maturity on the bonds will be 6% (annually compounded APR), what total principal amount of bonds must you issue?
2. The yield to maturity of a $1000 bond with a 7% coupon rate, semiannually coupons, and two years to maturity is 7.6% APR, compounded semiannually. What must its price be?
3. Summit Systems will pay a dividend of $1.50 this year. If you expect Summit's dividend to grow by 6% per year, what is its price per share if the firm's equity cost of capital is 11%?
4. The following table contains prices and dividends for a stock. All prices are after the dividend has been paid. If you bought the stock on January 1 and sold it on December 31, what is your realized return?
You are choosing between two projects, but can only take one. The cash flows for the projects are given in the following table:
|
|
0
|
1
|
2
|
3
|
4
|
|
A
|
-$50
|
25
|
20
|
20
|
15
|
|
B
|
-$100
|
20
|
40
|
50
|
60
|
a) What are the IRRs of the two projects?
b) If your discounted rate is 5%, what are the NPVs of the two projects?
c) Why do IRR and NPV rank the two projects differently?
5. You buy 100 shares of Tidepool Co. for $40 each and 200 shares of Madfish, Inc., for $15 each. What are the weights in your portfolio?
6. You are analyzing a stock that has a beta of 1.2. The risk-free rate is 5% and you estimate the market risk premium to be 6%. If you expect the stock to have a return of 11% over the next year, should you buy it? Why or why not?
7. This year, FCF, Inc., has earnings before interest and taxes of $10 million, depreciation expenses of $1 million, capital expenditures of $1.5 million, and has increased its net working capital by $500,000. If its tax rate is 35%, what is its free cash flow?
8. River Enterprises has $500 million in debt and 20 million shares of equity outstanding. Its excess cash reserves are $15 million. They are expected to generate $200 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' cost of equity capital is 12% per year in perpetuity. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share of stock be if you are right?
9. You are finalizing a bank loan for $200,000 for your small business and the closing fees payable to the bank are 2% of the loan. After paying the fees, what will be the net amount of funds from the loan available to your business?
10. Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick (acid-test) ratio
( ( Current Assets - Inventory ) / Current Liabilities)
of 1:1. Your net income this year was $70 million. Your cash is $10 million, your receivables are $8 million, and your inventory is $5 million. You have current liabilities of $19 million. What is the maximum dividend you could paythis year and still comply with your covenants?