The Naugatuck Railway is currently all equity financed, but it is considering a leveraged capital structure. Selected financial information for Naugatuck is provided in the table below. Assume that all cash flows occur at the end of the year and we are currently at the beginning of a year. Assume that taxes are zero. Assume […]
The cost of preferred stock: A) is equal to the dividend yield on the stock. B) is equal to the yield to maturity. C) is highly dependent on the growth rate. D) varies directly with the stock’s price. E) is difficult to determine. ANSWER A
Discounting is the process of reducing future values to present values. Indicate whether the statement is true or false ANSWER TRUE
A due-on-sale clause requires the immediate return of earnest money at closing. Indicate whether the statement is true or false ANSWER FALSE
The present value of $500 received at the end of each of the next three years is $1,243 (assuming a 10% interest rate). Indicate whether the statement is true or false ANSWER TRUE
The Pennsylvania Railroad (PRR) currently has a levered capital structure, but it is considering a proposal to issue new equity (@$30/share) and use the proceeds to retire its debt. Selected financial information for PRR is provided in the table below. Assume that PRR generates perpetual annual EBIT at a constant level. Assume that all cash […]
Banks pay interest on amounts held in escrow accounts. Indicate whether the statement is true or false ANSWER FALSE
Gyrl Skateboards manufactures skateboard decks. Guy Gyrl, the CEO, is forecasting cash flows for the next few months. Forecasted sales are shown on the top row of the table. Forecasted cash inflows and outflows are also shown in the table. If Gyrl’s starts December with $50,000 of cash in the bank, then what will its […]
A firm is considering the following independent investments: Project Investment NPV PI F $50M $1.00M 1.02 G $80M $4.40M 1.06 H $60M $4.00M 1.07 I $70M ($3.00M) 0.96 J $40M $1.30M 1.03 In the absence of capital rationing, what is the total NPV of the projects that should be selected? Which projects should be selected […]
Medical expenses can be claimed as itemized expenses without any limitations. Indicate whether the statement is true or false ANSWER FALSE
