Bus 401 Week 3 Quiz Version C

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In this work of BUS 401 Week 3 Quiz Version c you will find the next information: 1. The simulation approach provides us with (Points : 1) 2. Asian Trading Company paid a dividend yesterday of $5 per share (D0 = $4). The dividend is expected to grow at a constant rate of 8% per year. The price of Asian Trading Company's stock today is $29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal $2.50 per share. Asian Trading Company's marginal tax rate is 35%. Based on the above information, the cost of retained earnings is (Points : 1) 3. Clothier, Inc. has a target capital structure of 40% debt and 60% common equity, and has a 40% marginal tax rate. If Clothier's yield to maturity on bonds is 7.5% and investors require a 15% return on Clothier's common stock, what is the firm's weighted average cost of capital? (Points : 1) 4. Nickel Industries is considering the purchase of a new machine that will cost $178,000, plus an additional $12,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated using the straight-line method. The machine is expected to generate new sales of $85,000 per year and is expected to increase operating costs by $10,000 annually. Nickel's income tax rate is 40%. What is the projected incremental cash flow of the machine for year 1? (Points : 1) 5. A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of 3.5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.25 per share. The company's marginal tax rate is 35%. Therefore, the cost of preferred stock is: (Points : 1) 6. Five Rivers Casino is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Gamblers flotation expense on the new bonds will be $50 per bond. Gamblers marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds? (Points : 1) 7. Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%. The net present value for Project B is (Points : 1) 8. A new machine can be purchased for $1,200,000. It will cost $35,000 to ship and $15,000 to modify the machine. A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for $180,000. The firm will borrow $750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate $350,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1) 9. Rent-to-Own Equipment Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. Rent-to-Own's required rate of return is 8%. What is the net present value of this project? (Points : 1) 10. PDF Corp. needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for $50,000 nine years ago and has a current book value of $5,000. (The old machine is being depreciated on a straight-line basis over a ten-year useful life.) The new lathe costs $100,000. It will cost the company $10,000 to get the new lathe to the factory and get it installed. The old machine will be sold as scrap metal for $2,000. The new machine is also being depreciated on a straight-line basis over ten years. Sales are expected to increase by $8,000 per year while operating expenses are expected to decrease by $12,000 per year. PDF's marginal tax rate is 40%. Additional working capital of $3,000 is required to maintain the new machine and higher sales level. The new lathe is expected to be sold for $5,000 at the end of the project's ten-year life. What is the project's terminal cash flow? (Points : 1)

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Business - General Business 1. Question : The appropriate cash flows for evaluating a corporate investment decision are: Student Answer: incremental additional cash flows. marginal after-tax cash flows. incremental after-tax cash flows. investment after-tax cash flows. Instructor Explanation: The answer can be found in Section 6.1: How to Compute Cash Flows. Points Received: 1 of 1 Comments: 2. Question : The typical corporate investment requires a large cash outlay followed by several years of cash inflows. To make these cash flows comparable, we do which of the following? Student Answer: Adjust both cash outflows and inflows for taxes. Subtract interest charges to reflect the time value of money. Adjust both outflows and inflows for the effects of depreciation. Apply time value of money concepts and compare present values. Instructor Explanation: The answer can be found in Section 6.1: How to Compute Cash Flows. Points Received: 1 of 1 Comments: 3. Question : If depreciation expense is a noncash charge, why do we consider it when determining cash flows? Student Answer: because depreciation expense reduces taxable income, so reduces the amount of taxes paid because depreciation expense offsets part of the initial cash outlay for depreciable assets because depreciation expense reduces net income because depreciation expense is a method for allocating costs Instructor Explanation: The answer can be found in Section 6.1: How to Compute Cash Flows. Points Received: 1 of 1 Comments: 4. Question : The internal rate of return is: Student Answer: the discount rate at which the NPV is maximized. the discount rate used by people within the company to evaluate projects. the rate of return that a project must exceed to be acceptable. the discount rate that equates the present value of benefits to the present value of costs. Instructor Explanation: The answer can be found in Section 7.1: Capital Budgeting Methods. Points Received: 1 of 1 Comments: 5. Question : Chapter 7 introduced three methods for evaluating a corporate investment decision. Which of the following is not one of those methods? Student Answer: payback period net present value (NPV) return on assets (ROA) internal rate of return (IRR) Instructor Explanation: The answer can be found in Section 7.1: Capital Budgeting Methods. Points Received: 1 of 1 Comments: 6. Question : In perfect capital markets, the capital structure decision is: Student Answer: important because it affects the cash flows to shareholders. important because debt and equity are taxed differently. irrelevant because the decision has no effect on cash flows. important sometimes. Instructor Explanation: The answer can be found in Section 8.1: Perfect Capital Markets. Points Received: 1 of 1 Comments: 7. Question : The interplay of the tax advantages of debt and the threat of bankruptcy results in: Student Answer: companies that have some optimal level of debt that maximizes firm value. all companies having a debt-to-equity ratio close to 50%. all companies having a debt-to-equity ratio close to 30%. capital structure being irrelevant. Instructor Explanation: The answer can be found in Section 8.1: Perfect Capital Markets. Points Received: 1 of 1 Comments: 8. Question : Costs associated with bankruptcy include: Student Answer: legal fees, managerial time shifted away from value creation, and loss of brand value. legal fees, additional inventory costs from sales growth, and loss of brand value. legal fees, managerial time shifted away from value creation, and increased market share. legal fees, employees leaving the company, and cost savings from lower labor costs. Instructor Explanation: The answer can be found in Section 8.1: Perfect Capital Markets. Points Received: 1 of 1 Comments: 9. Question : All else being equal, as debt replaces equity in a profitable company’s capital structure, which of the following occurs? Student Answer: Interest expense increases, reducing taxable income and reducing taxes. Interest expense increases, reducing net income and earnings per share. Interest expense increases, reducing cash flows available to shareholders. Interest expense increases, reducing profitability and the wealth of shareholders. Instructor Explanation: The answer can be found in Section 8.1: Perfect Capital Markets. Points Received: 1 of 1 Comments: 10. Question : Two important aspects of debt financing are its tax advantages and the threat of bankruptcy. As a company shifts to more and more debt financing: Student Answer: these factors reinforce one another, implying that more debt is always better. the tax advantage always outweighs bankruptcy risk. the threat of bankruptcy makes only very low levels of debt acceptable. the threat of bankruptcy eventually completely offsets the tax advantage of debt. Instructor Explanation: The answer can be found in Section 8.1: Perfect Capital Markets.

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Get to know the people in the financial aid office. If you make friends with them, they will appear more friendly to you. Then, when you have questions, they can assist you more easily. While they are all professionals, it never hurts to grease the social wheels when it comes to your financial needs.