BUS602 – Suppose that Brown-Murphies’ common shares sell for $17.00 per share

BUS602 – Suppose that Brown-Murphies’ common shares sell for $17.00 per share

Subject: Business / General Business
Question
1-) Suppose that Brown-Murphies’ common shares sell for $17.00 per share, that the firm is expected to
set their next annual dividend at $0.47 per share, and that all future dividends are expected to grow by 6
percent per year, indefinitely. Assume Brown-Murphies faces a flotation cost of 14 percent on new equity
issues.
What will be the flotation-adjusted cost of equity? (Round your answer to 2 decimal places.)
% Cost of equity 2-) Suppose that JB Cos. has a capital structure of 80 percent equity, 20 percent debt, and that its
before-tax cost of debt is 12 percent while its cost of equity is 16 percent. Assume the appropriate
weighted-average tax rate is 25 percent.
What will be JB’s WACC? (Round your answer to 2 decimal places.)
WACC % 3-) WhackAmOle has 3 million shares of common stock outstanding, 2.0 million shares of preferred stock
outstanding, and 75,000 bonds. Assume the common shares are selling for $65 per share, the preferred
shares are selling for $59.00 per share, and the bonds are selling for 105 percent of par.
What would be the weights used in the calculation of WhackAmOle’s WACC? (Do not round
intermediate calculations and round your answers to 2 decimal places.) % Equity weight % Preferred stock weight % Debt weight 4-)Suppose that B2B, Inc., has a capital structure of 37 percent equity, 18 percent preferred stock, and
45 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 13.5
percent, 9.0 percent, and 8.5 percent, respectively.
What is B2B’s WACC if the firm faces an average tax rate of 30 percent? (Round your answer to 2
decimal places.)
WACC % 5-) Your firm needs a computerized machine tool lathe which costs $51,000 and requires $12,100 in
maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine
falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of
11 percent. Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal
places.)
$ Depreciation tax shield 6-) KADS, Inc., has spent $320,000 on research to develop a new computer game. The firm is planning
to spend $120,000 on a machine to produce the new game. Shipping and installation costs of the
machine will be capitalized and depreciated; they total $42,000. The machine has an expected life of
three years, a $67,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue
from the new game is expected to be $520,000 per year, with costs of $170,000 per year. The firm has a
tax rate of 35 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to
increase by $60,000 at the beginning of the project.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign.
Round your answers to 2 decimal places.)
Year
FCF 0 1
$ 2
$ 3
$ 7-) Compute the IRR for Project F. The appropriate cost of capital is 13 percent. (Do not round
intermediate calculations and round your final answer to 2 decimal places.)
Project F
Time:
Cash flow 0
–$11,700 1
$4,200 2
$5,030 3
$2,370 4
$3,000 % IRR Should the project be accepted or rejected?
Rejected
Accepted
😎 Compute the payback statistic for Project B if the appropriate cost of capital is 11 percent and the
maximum allowable payback period is three years. (Round your answer to 2 decimal places. If the
project never pays back, then enter a "0" (zero).)
Project B
Time:
Cash flow Payback 0
1
–$12,700 $3,520 2
$4,520 years 3
$1,860 4
$0 5
$1,340 $ Should the project be accepted or rejected?
Accepted
Rejected
9-) Compute the discounted payback statistic for Project C if the appropriate cost of capital is 8 percent
and the maximum allowable discounted payback period is three years. (Do not round intermediate
calculations and round your final answer to 2 decimal places.)
Project C
Time:
Cash flow 0
–$1,600 1
$720 2
$660 3
$700 Discounted payback period 4
$420 5
$220 years Should the project be accepted or rejected?
Rejected
Accepted
10) Compute the PI statistic
intermediate calculations and round your final answer to 2 decimal places.)
Project Q
Time:
Cash flow PI
Should the project be accepted or rejected?
Accepted
Rejected