FIN515 Week 6 test

1. (TCO D) A stock just paid a dividend of D0 = $1.50. The
required rate of return is rs = 10.1%, and the constant growth rate is g =
4.0%. What is the current stock price? (Points : 10)
$23.11
$23.70
$24.31
$24.93
$25.57

2. (TCO D) If D0 = $2.25, g (which is constant) = 3.5%, and
P0 = $50, what is the stock’s expected dividend yield for the coming year?
(Points : 10)
4.42%
4.66%
4.89%
5.13%
5.39%

3. (TCO D) Rebello’s preferred stock pays a dividend of
$1.00 per quarter, and it sells for $55.00 per share. What is its effective
annual (not nominal) rate of return? (Points : 10)
6.62%
6.82%
7.03%
7.25%
7.47%
[6:33:08 PM] Amanda L Butler: 4. (TCO E) Which of the
following is NOT a capital component when calculating the weighted average cost
of capital (WACC) for use in capital budgeting? (Points : 10)
Long-term debt
Accounts
payable
Retained
earnings
Common stock
Preferred stock

5. (TCO E) Duval Inc. uses only equity capital, and it has
two equally-sized divisions. Division A’s cost of capital is 10.0%, Division
B’s cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division
A’s projects are equally risky, as are all of Division B’s projects. However,
the projects of Division A are less risky than those of Division B. Which of
the following projects should the firm accept? (Points : 10)
A Division B
project with a 13% return.
A Division B
project with a 12% return.
A Division A
project with an 11% return.
A Division A
project with a 9% return.
A Division B
project with an 11% return.

6. (TCO D) Assume that you are a consultant to Broske Inc.,
and you have been provided with the following data: D1 = $0.67; P0 = $27.50;
and g = 8.00% (constant). What is the cost of common from retained earnings
based on the DCF approach? (Points : 10)
9.42%
9.91%
10.44%
10.96%
11.51%

7. (TCO F) Cornell Enterprises is considering a project that
has the following cash flow and WACC data. What is the project’s NPV? Note that
a project’s expected NPV can be negative, in which case it will be rejected.

WACC: 10.00%
Year
0 1 2
3

———————————————–
Cash flows
-$1,050 $450 $460
$470 (Points : 10)
$ 92.37
$ 96.99
$101.84
$106.93
$112.28

8. (TCO F) Simkins Renovations Inc. is considering a project
that has the following cash flow data. What is the project’s IRR? Note that a
project’s IRR can be less than the WACC (and even negative), in which case it
will be rejected.

Year 0
1 2 3 4

———————————————————
Cash flows
-$850 $300 $290
$280 $270 (Points : 10)
13.13%
14.44%
15.89%
17.48%
19.22%

9. (TCO F) Masulis Inc. is considering a project that has
the following cash flow and WACC data. What is the project’s discounted
payback?

WACC: 10.00%
Year
0 1 2 3 4
———————————————————
Cash flows
-$950 $525 $485
$445 $405 (Points : 10)
1.61 years
1.79 years
1.99 years
2.22 years
2.44 years

10. (TCO H) Temple Corp. is considering a new project whose
data are shown below. The equipment that would be used has a three-year tax
life, would be depreciated by the straight-line method over its three-year
life, and would have a zero salvage value. No new working capital would be required.
Revenues and other operating costs are expected to be constant over the
project’s three-year life. What is the project’s NPV?
Risk-adjusted WACC
Net investment cost (depreciable basis)
Straight-line deprec. rate
Sales revenues, each year
Operating costs (excl. deprec.), each year
Tax rate 10.0%
$65,000
33.333%
$65,500
$25,000
35.0%
a. $15,740
b. $16,569
c. $17,441
d. $18,359
e. $19,325

Indicate your choice for your answer – a,b,c,d,e first and
then show your work/explain your answer so as to earn partial credit in the
event you selected the incorrect answer.