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FIN 571 Week 4 Connect Problems

FIN 571 Week 4 Connect Problems
FIN 571 Week 4 Connect Problems -
  1. Microhard has issued a bond with the following characteristics:

Par: $1,000

Time to maturity: 11 years

Coupon rate: 9 percent

Semiannual payments

Calculate the price of this bond if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

Price of the Bond

a.  9 percent                       $ _____

b.  11 percent                    $_____

c.  7 percent                       $ _____

 

  1. Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 90 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

          YTM                       _____ %

 

  1. Grand Adventure Properties offers a 7 percent coupon bond with annual payments. The yield to maturity is 5.85 percent and the maturity date is 8 years from today. What is the market price of this bond if the face value is $1,000?
  • $1,071.84
  • $788.73
  • $1,082.17
  • $1,019.29
  • $947.45

 

  1. The next dividend payment by ECY, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells for $31 per share.

What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return                               _____ %

 

  1. The Starr Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 14 percent on the stock.
  1. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current price                             $ _____

  1. What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price                  $ _____

  1. What will the price be in 7 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price                  $ _____

 

  1. The next dividend payment by ECY, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells for $31 per share.
  1. What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Dividend yield                           _____%

  1. What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Capital gains yield    ______ %

 

  1. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?
  • 8.09%
  • 12.76%
  • 9.59%
  • 10.25%
  • 17.24%

 

  1. The risk premium for an individual security is computed by:
  • multiplying the security's beta by the market risk premium.
  • multiplying the security's beta by the risk-free rate of return.
  • adding the risk-free rate to the security's expected return.
  • dividing the market risk premium by the quantity (1 + Beta).
  • dividing the market risk premium by the beta of the security.

 

  1. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?
  • 9.17%
  • 9.24%
  • 13.12%
  • 14.03%
  • 14.36%

 

  1. Mullineaux Corporation has a target capital structure of 80 percent common stock and 20 percent debt. Its cost of equity is 17 percent, and the cost of debt is 11 percent. The relevant tax rate is 35 percent.

What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC                   _____ %

 

  1. Miller Manufacturing has a target debt–equity ratio of .65. Its cost of equity is 13 percent, and its cost of debt is 9 percent. If the tax rate is 40 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC                   _____ %

 

  1. Filer Manufacturing has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value $70 million, a coupon of 8 percent, and sells for 94 percent of par. The second issue has a face value of $40 million, a coupon of 9 percent, and sells for 107 percent of par. The first issue matures in 23 years, the second in 6 years.
  1. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)              

Equity / Value                    _____

Debt / Value                      _____

  1. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Equity / Value                    _____

Debt / Value                      _____

  1. Which are more relevant?

 

  1. Titan Mining Corporation has 8.8 million shares of common stock outstanding and 320,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $36 per share and has a beta of 1.4, and the bonds have 10 years to maturity and sell for 117 percent of par. The market risk premium is 7.6 percent, T-bills are yielding 5 percent, and the company’s tax rate is 38 percent.
  1.  What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Weight

Debt                      _____ %

Equity                   _____ %

  1.  If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Discount rate     _____%

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