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FINC330 Final Exam Answers


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FINC 330 Final Exam Answers

  1. Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 12.64 percent coupon rate and paid interest annually. It is now 15 years later. The current market rate of interest on the Bright Sun bonds is 11.30 percent. What is the current market price (intrinsic value) of the bonds?
  2. General Mills has a $1,000 par value, 19-year to maturity bond outstanding with an annual coupon rate of 11.76 percent per year, paid semiannually. Market interest rates on similar bonds are 8.07 percent. Calculate the bond’s price today.
  3. Dan is considering the purchase of Super Technology, Inc. bonds that were issued 6 years ago. When the bonds were originally sold they had a 24-year maturity and a 8.25 percent coupon interest rate, paid annually. The bond is currently selling for $883. Par value of the bond is $1,000. What is the yield to maturity on the bonds if you purchased the bond today?
  4. A few years ago, Spider Web, Inc. issued bonds with a 7.09 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $1,084, and will mature in 15 years. What would the annual yield to maturity be on the bond if you purchased the bond today?
  5. Black Water Corp. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 30 years and a yield to maturity of 13.35 percent, compounded annually. What is the current price of the bond?
  6. What is the yield to call of a 20-year to maturity bond that pays a coupon rate of 10.28 percent per year, has a $1,000 par value, and is currently priced at $1,344? The bond can be called back in 6 years at a call price $1,093. Assume annual coupon payments.
  7. A $1,000 par value bond with a 8.34 percent coupon rate, currently selling for $918, has a current yield of _____.
  8. Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company’s project, assuming the company’s cost of capital is 9.13 percent. The initial outlay for the project is $432,834. The project will produce the following after-tax cash inflows of
  9. Deep Waters, Inc. is using the internal rate of return (IRR) when evaluating projects. Find the IRR for the company’s project. The initial outlay for the project is $458,700. The project will produce the following after-tax cash inflows of
  10. Find the modified internal rate of return (MIRR) for the following series of future cash flows if the company is able to reinvest cash flows received from the project at an annual rate of 11.46 percent.The initial outlay is $356,600.
  11. Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 11.89 percent. What is the PI of a project if the initial costs are $1,345,820 and the project life is estimated as 8 years? The project will produce the same after-tax cash inflows of $483,785 per year at the end of the year.
  12. Find the Discounted Payback period for the following project. The discount rate is 10%
  13. Given the following information on Big Brothers, Inc. capital structure, compute the company’s weighted average cost of capital (WACC). The company’s marginal tax rate is 40%.
  14. UPS preferred stock pays $11 in annual dividends. If your required rate of return is 6.47 percent, how much would you be willing to pay for one share of this preferred stock?
  15. Great Seneca Inc. sells $100 million worth of 25-year to maturity 13.76% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $992 for each $1,000 bond. The firm's marginal tax rate is 30%. What is the after-tax cost of capital for this debt financing?
  16. Reversing Rapids Co. purchases an asset for $185,373. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of year 4 for $12,571.
  17. Calculate the cost of new common equity financing of stock R using Gordon Model
  18. Nature Food Inc. needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $2.72 per year. That preferred stock is currently selling for $62.76. However, the underwriter would charge flotation costs of $2.29 per share. What is the form’s cost of preferred stock financing?
  19. You hold a portfolio with the following securities:
  20. Calculate the expected return on stock of Gamma Inc.:
  21. Jack holds a portfolio with the following securities:
  22. Mary purchased 100 shares of Harley Davidson Co. stock at a price of $76.55 six months ago. She sold all stocks today for $75.12. During this period the stock paid dividends of $4.02 per share. What is Mary’s annualized holding period return (annual percentage rate)?
  23. The next year the common stock of Gold Corp. will pay a dividend of $5.05 per share. If the company is growing at a rate of 5.45 percent per year, and your required rate of return is 10.28 percent, what is Gold's company stock worth to you?
  24. Deci-Bell, Inc. is producing new headphones, but first management wants to determine its degree of operating leverage. Deci-Bell Inc. has a base level of sales of 260,532 units. Sales price per unit is $123.60 and variable cost per unit is $64.02. Total annual operating fixed costs are $6,663,110.
  25. Cheeseburger and Taco Company purchases 8,602 boxes of cheese each year. It costs $17 to place and ship each order and $5.15 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.

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