QUESTION You have just won the state lottery and have two choices for collecting your winning. You can collect $50,000 today or receive $10,100 per year for the next seven years. A financial analysts has told you that you can earn 10% on your investments. Which alternative should you select and why? Solution: Option 1: […]
QUESTION Distinguish between the money and capital markets. Basically the difference between the capital markets and money markets is that capital markets are for long term investments, companies are selling stocks and bonds in order to borrow money from their investors to improve their company or to purchase assets. Whereas money markets are more of […]
QUESTION conduct the analysis and calculate payback period for each option, IRR of each option and NPV for each option at three WACC points of 12%, 14% and 16% Option A: Repair the machine Year Cash flow 0 -50,000 1 15,500 2 20,100 3 18,900 4 17,100 5 13.700 Option B: Buy a new machine […]
QUESTION Bin Restaurant Corp preferred stock has a market price of $14.50. If it has a yearly dividend of $3.50, what is your expected rate of return if you purchase the stock at its market price?Answer41.43%19.45%22.36%24.14% According to the given information,Annual dividend for preferred stock = $3.50Market price of preferred stock = $14.50The formula for […]
QUESTION For a typical corporation, which of the following capital structures will result in the lowest weighted average cost of capital?Answer40% debt, 20% preferred stock, 40% common equity50% debt, 10% preferred stock, 40% common equity60% debt, 10% preferred stock, 30% common equity60% debt, 15% preferre Let us assume for example,Cost of debt (Kd) = 8%Cost […]
QUESTION 11. Companies E and P each reported the same earnings per share (EPS), but Company Es stock trades at a higher price. Which of the following statements is CORRECT?A) Company E probably has fewer growth opportunities.B) Company E is probably judged by investors to be riskier.C) Company E must 11. EPS = Earnings avalible […]
QUESTION What is the expected rate of return on a bond that matures in 8 years, has a par value of $1,000, a coupon rate of 12%, and is currently selling for $976? Assume annual coupon payments. Bond solution: Interest payments = Par value * coupon rate Interest payments = $1,000 * 14% Interest payments […]
QUESTION A bakery company is considering one capital budgeting project involving the replacement of a sophisticated brick oven, and another capital budgeting project involving research and development into synthetic food substitutes. Which of the following statements is most correct concerning the risk-adjus Generally we have two types of projects. 1. Replacement projects 2. Expansion projects […]
QUESTION What are the benefits and disadvantages of a company that increase s the spread between ROIC and WACC? There is no disadvantage of increasing the spread between ROIC and WACC (assuming ROIC is greater than WACC) sans illegal activities, or increasing short-term spreads at the expense of future returns. Simply put, WACC is the […]
QUESTION 1. Consider the $50,000 excess cash.Assume that Gary invests the funds in a one year CDa.What is the CD s value at maturity( future calue)if it pays 10 percent(annual) interest?b. What will its future value be if the CD pays 5 percent interest? If it pays 15 percent interest?c.BankSouth offers CDs w a) FV= […]
