Question: Metallica Bearings, Inc., is a young start-

> Knight Inventory Systems, Inc., has announced a rights offer. The company has announced that it will take four rights to buy a new share in the offering at a subscription price of $35. At the close of business, the day before the ex-rights day, the compa

> Prahm Corp. wants to raise $4.7 million via a rights offering. The company currently has 530,000 shares of common stock outstanding that sell for $55 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a s

> Show that the value of a right just prior to expiration can be written as:Value of a right=PRO PX = (PRO Ps) / (N + 1)where PRO, PS, and PX stand for the rights-on price, the subscription price, and the ex-rights price, respectively, and N is the number

> In Problem 10, what would the ROE on the investment have to be if we wanted the price after the offering to be $75 per share? (Assume the PE ratio remains constant.) What is the NPV of this investment? Does any dilution take place?Problem 10:The Metallic

> In the previous problem, suppose the fixed asset actually qualifies for 100 percent bonus depreciation in the first year. What is the new NPV?Previous problem:You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers

> Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,560,000; the new one will cost $1,872,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $

> The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:Stock price …………………………………………………………………………………………… $ 75Number of shares ……………………………………………………………………………… 64,

> You have an investment that will pay you 0.67 percent per month. How much will you have per dollar invested in one year? In two years?

> Targaryen Corporation has a target capital structure of 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The rel

> For the firm in Problem 7, suppose the book value of the debt issue is $95 million. In addition, the company has a second debt issue on the market, a zero coupon bond with eight years left to maturity; the book value of this issue is $40 million, and the

> Jiminy’s Cricket Farm issued a 30-year, 6 percent semiannual bond three years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 22 percent.a. What is the pretax cost of debt?b. What is the after tax cost of debt?c.

> Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 103 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What

> Holdup Bank has an issue of preferred stock with a stated dividend of $4.25 that just sold for $93 per share. What is the bank’s cost of preferred stock?

> Suppose Stark, Ltd., just issued a dividend of $2.51 per share on its common stock. The company paid dividends of $2.01, $2.17, $2.25, and $2.36 per share in the last four years. If the stock currently sells for $43, what is your best estimate of the com

> In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures.Previous problem:We are evaluating a project that costs

> The Rhaegel Corporation’s common stock has a beta of 1.07. If the risk-free rate is 3.5 percent and the expected return on the market is 10 percent, what is the company’s cost of equity capital?

> Your company has been approached to bid on a contract to sell 4,800 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment

> What would the lease payment have to be for both lessor and lessee to be indifferent about the lease?

> You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $250 per month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pa

> Given the following information for Watson Power Co., find the WACC. Assume the company’s tax rate is 21 percent.Debt: …………………….. 15,000 bonds with a 5.8 percent coupon outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par;

> Starset, Inc., has a target debt-equity ratio of .85. Its WACC is 9.1 percent, and the tax rate is 23 percent.a. If the company’s cost of equity is 14 percent, what is its pretax cost of debt?b. If instead you know that the after tax cost of debt is 6.5

> In Problem 12, suppose the most recent dividend was $3.25 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The

> Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $68, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of

> Fama’s Llamas has a weighted average cost of capital of 7.9 percent. The company’s cost of equity is 11 percent, and its pretax cost of debt is 5.8 percent. The tax rate is 25 percent. What is the company’s target debt-equity ratio?

> What was the average annual return on large-company stocks from 1926 through 2016: a. In nominal terms?b. In real terms?

> Lannister Manufacturing has a target debt-equity ratio of .55. Its cost of equity is 11 percent, and its cost of debt is 6 percent. If the tax rate is 21 percent, what is the company’s WACC?

> The Drogon Co. just issued a dividend of $2.80 per share on its common stock. The company is expected to maintain a constant 4.5 percent growth rate in its dividends indefinitely. If the stock sells for $58 a share, what is the company’s cost of equity?

> Consider the following information:

> A portfolio is invested 25 percent in Stock G, 55 percent in Stock J, and 20 percent in Stock K. The expected returns on these stocks are 11 percent, 9 percent, and 15 percent, respectively. What is the portfolio’s expected return? How do you interpret y

> Based on the following information, calculate the expected return:

> In the previous problem, we assumed that the stock had a single stock price for the year. However, if you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a hig

> Suppose the firm in Problem 16 is considering two mutually exclusive investments. Project A has an NPV of $1,900, and Project B has an NPV of $2,800. As the result of taking Project A, the standard deviation of the return on the firm’s assets will increa

> You have found the following historical information for the Daniela Company over the past four years:

> Domergue Corp. currently has an EPS of $3.76, and the benchmark PE for the company is 21. Earnings are expected to grow at 5.1 percent per year.a. What is your estimate of the current stock price?b. What is the target stock price in one year?c. Assuming

> Navel County Choppers, Inc., is experiencing rapid growth. The company expects dividends to grow at 18 percent per year for the next 11 years before leveling off at 4 percent into perpetuity. The required return on the company’s stock is 10 percent. If t

> A7X Corp. just paid a dividend of $1.55 per share. The dividends are expected to grow at 21 percent for the next eight years and then level off to a growth rate of 3.5 percent indefinitely. If the required return is 12 percent, what is the price of the s

> You have found the following stock quote for RJW Enterprises, Inc., in the financial pages of today’s newspaper. What was the closing price for this stock that appeared in yesterday’s paper? If the company currently ha

> In addition to the five factors discussed in the chapter, dividends also affect the price of an option. The Black-Scholes option pricing model with dividends is:All of the variables are the same as the Black-Scholes model without dividends except for the

> Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $9.80, but management expects to reduce the payout by 4 percent per year indefinitely. If you require a return of 9.5 percent on this stock, what will you pay for a share t

> The next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of 4.5 percent forever. If the stock currently sells for $37 per share, what is the required return?

> Mobray Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 6 percent per year indefinitely. The required return on this stock is 10 percent, a

> Elliott Credit Corp. wants to earn an effective annual return on its consumer loans of 17.1 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this

> Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 11 percent, and the company just paid a divide

> Lohn Corporation is expected to pay the following dividends over the next four years: $13, $9, $6, and $2.75. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 10.75 p

> Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $2.75 per share and has announced that it will increase the dividend by $4.50 per share for each of the next five years and then never pay another dividend. If you require

> Moody Farms just paid a dividend of $2.65 on its stock. The growth rate in dividends is expected to be a constant 3.8 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the next t

> TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $2.1 million and there are 130,000 shares outstanding. If the benchmark price-sales ratio is 4.3, what is your estimate of an appropriate stock price? What if

> The Perfect Rose Co. has earnings of $3.18 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21?

> Colosseum Corp. has a zero coupon bond that matures in five years with a face value of $65,000. The current value of the company’s assets is $62,000, and the standard deviation of its return on assets is 34 percent per year. The risk-free rate is 7 perce

> In the previous problem, assume that the company uses cumulative voting, and there are four seats in the current election. How much will it cost you to buy a seat now?Previous problem:After successfully completing your corporate finance class, you feel t

> After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. If the company has 650,000 shares outs

> Based on the following information, calculate the expected return:,,,

> First National Bank charges 13.1 percent compounded monthly on its business loans. First United Bank charges 13.4 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?

> The Jackson-Timberlake Wardrobe Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. If investors require a return of 10.5 percent on the company’s stock, what

> You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the price of the bond? Assume semiannual compounding periods.

> McConnell Corporation has bonds on the market with 14.5 years to maturity, a YTM of 5.3 percent, a par value of $1,000, and a current price of $1,045. The bonds make semiannual payments. What must the coupon rate be on these bonds?

> West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM?

> Weismann Co. issued 15-year bonds a year ago at a coupon rate of 4.9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 4.5 percent, what is the current bond price?

> Gabriele Enterprises has bonds on the market making annual payments, with eight years to maturity, a par value of $1,000, and selling for $948. At this price, the bonds yield 5.1 percent. What must the coupon rate be on the bonds?

> A Japanese company has a bond outstanding that sells for 105.43 percent of its ¥100,000 par value. The bond has a coupon rate of 3.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond?

> At one point, certain U.S. Treasury bonds were callable. Consider the prices in the following three Treasury issues as of May 15, 2017:

> Zevon Industries has a zero coupon bond issue that matures in two years with a face value of $40,000. The current value of the company’s assets is $26,700, and the standard deviation of the return on assets is 60 percent per year.a. Assume the risk-free

> Based on the following information, calculate the expected return:,,,

> Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $900 every six months over the subsequent eight years, and finall

> Find the APR, or stated rate, in each of the following cases:

> The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).a. Suppose that today you buy a bond with

> Bond P is a premium bond with a coupon rate of 9 percent. Bond D has a coupon rate of 5 percent and is currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have 10 years to maturity. What is the current yield for

> You want to have $2.5 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10.3 percent and the inflation rate is 3.7 percent. What real amount must you deposit each year to achieve your goal?

> You are looking at an investment that has an effective annual rate of 11.6 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

> Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 23 years to maturity, and a coupon rate

> Suppose your company needs to raise $53 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.3 percent, and you’re evaluating two issue alternatives: a semiannual coupon bond with a coupon

> Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return ona. the bonds will be 4.9 percent. Assume se

> If the appropriate discount rate for the following cash flows is 9 percent compounded quarterly, what is the present value of the cash flows? Year …………………………….……………………. Cash Flow1 …….……………………………………………..…………. $ 8152 ………………………………………………………………… 9903………………………

> You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 12.1 percent and Stock Y with an expected return of 9.8 percent. If your goal is to create a portfolio with an expected return of 10.85 percent, how much

> Suppose you bought a bond with an annual coupon of 7 percent one year ago for $1,010. The bond sells for $985 today.a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?b. What was your total nominal ra

> Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $2,000 and the current date is April 19, 2018. What is the yield to maturity of the bond? What

> A company has a single zero coupon bond outstanding that matures in five years with a face value of $17.5 million. The current value of the company’s assets is $15.9 million, and the standard deviation of the return on the firm’s assets is 41 percent per

> Find the EAR in each of the following cases:

> Excey Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.2 percent. The current yield on these bonds is 7.55 percent. How many years do these bonds have left until they mature?

> You purchase a bond with a coupon rate of 5.3 percent and a clean price of $951. If the next semiannual coupon payment is due in two months, what is the invoice price?

> Calculate the internal growth rate for the company in Problem 22. Now calculate the internal growth rate using ROA × b for both beginning of period and end of period total assets. What do you observe?Data from Problem 22:Gilmore, Inc., had equity of $145

> You’ve collected the following information about Molino, Inc.:What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity

> Based on the following information, calculate the sustainable growth rate for Hendrix Guitars, Inc.:,,,

> In Question 1, assume the company pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements and determine the external financing needed.Data from Question 1:

> A firm wishes to maintain an internal growth rate of 7.1 percent and a dividend payout ratio of 25 percent. The current profit margin is 6.5 percent, and the firm uses no external financing sources. What must total asset turnover be?

> Use the results of Problem 26 to find the degree of operating leverage for the company in Problem 27 at the base-case output level of 30,000 tons. How does this number compare to the sensitivity figure you found in Problem 28? Verify that either approach

> Ramble On Co. wishes to maintain a growth rate of 12 percent per year, a debt-equity ratio of .90, and a dividend payout ratio of 25 percent. The ratio of total assets to sales is constant at 0.85. What profit margin must the firm achieve?

> You purchase a bond with an invoice price of $948. The bond has a coupon rate of 5.9 percent, and there are four months to the next semiannual coupon date. What is the clean price of the bond?

> Hodgkiss Mfg., Inc., is currently operating at only 91 percent of fixed asset capacity. Current sales are $715,000. How fast can sales grow before any new fixed assets are needed?

> Assuming the following ratios are constant, what is the sustainable growth rate?,,,

> Based on the following information, calculate the sustainable growth rate for Kaleb’s Heavy Equipment:,,,

> The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.3 million in annual p

> If Synyster Corp. has an ROE of 14.7 percent and a payout ratio of 30 percent, what is itss ustainable growth rate?

> If A7X Co. has an ROA of 7.6 percent and a payout ratio of 25 percent, what is its internal growth rate?

> From the previous two questions, prepare a pro forma balance sheet showing EFN, assuming an increase in sales of 15 percent, no new external debt or equity financing, and a constant payout ratio.Data from Problem 9:Consider the following income statement

> You own a portfolio that is invested 35 percent in Stock X, 20 percent in Stock Y, and 45 percent in Stock Z. The expected returns on these three stocks are 9 percent, 15 percent, and 12 percent, respectively. What is the expected return on the portfolio

> The balance sheet for the Heir Jordan Corporation follows. Based on this information and the income statement in the previous problem, supply the missing information using the percentage of sales approach. Assume that accounts payable vary with sales, wh

> Consider the following simplified financial statements for the Wims Corporation (assuming no income taxes):

> Chamberlain Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market that sell for $1,083, make semiannual payments, and mature in 20 years. What coupon rate should the c

> Based only on the following information for Thrice Corp., did cash go up or down? By how much? Classify each event as a source or use of cash.Decrease in inventory ………………………………………………………………………….. $375Decrease in accounts payable ………………………………………………………………….