No Spacing Heding 1 reading 2 Use this infornation to answer

No Spacing Heding 1 reading 2 Use this infornation to answer 19&20 Round all number to nearest \"acompany\'s cost ofcapial-85%and by implementing a new 20,000.00 per year for three years and then the software will be obsolete. The inital cost is 01,231.00 this amount indudes 200,000 in working capital, and their taw rate is 38 A Diversify & Recelve a risk premium C Raise the risk free rate ENone of the above D. Lower the risk free rate sohware syitems they cansav For Questions 15-18 use the folowing inforemation Assume ALFACompany has a bond issue with atmo, 5% The company has ?00000 shares of common stock outstanding with a dividend growth rate of 12% They wil asuea 75 cent dividend next week and their beta is 1.2. The T-88 rate is 75 bex have 10,000,000.00 in preflerred stock(which is 1S% of ther equity, with a 7.SS% dvidend. The company\'s tax rate is ass. The apital structure s O% equity and 40% debt. The market risk premium is 65% 19. The NPV is between A 500,000&700,000 750,0008 300,000 .1,000,000&1,200,000 350,000&500,000 10,000&40,000 15. What is the company\'s cost of equity? 20. The NPy is between A 500,000&200,000 750,000& 900,000E.1,000,000&1,200,000 A. 0612 350,000 &500,000 10,000 & 43,000 0420 D 0250 16 What is the company\'s after tax cost of debe? 21. The company holds all the risk in Fiem commitment underwrting A.05% .5% ?.02 E, none ofthe above D.013 22. The market risk prenium always stays the same. 17. What is the Wacc2 A 0068 & 0698 0499 D.096 E none of the above 21. In the constant dividend growth model D3 represents last dividend paid The growth rate of divide A The B. C. The price phus the dividend 18. This company s: The average dividend None of the above D. All of the above A More volatile than the market E. None of the above C Not enough information to determine age 3 of 5 992 Words English (US)

Solution

14-

none of the above

15-

cost of equity =risk free rate+(market risk premium)*beta

2+(6.5)*1.2

9.8

none of the above

16-

cost of debt = YTM*(1-tax rate)

5*(1-.35)

3.25

cost of preferred stock = preferred dividend/price

7.55

17-

source

weight

cost

weight*cost

debt

0.4

0.0325

0.013

preferred

0.15

0.0755

0.011325

common stock

0.45

0.098

0.0441

WACC

sum of weight*cost

0.068

Answer is none of the above

18-

not enough information to determine

19-

Year

cash flow

present value at 8.5% = cash flow/(1+r)^n r = 8.5%

0

-401231

-401231

1

420000

387096.8

2

420000

356771.2

3

620000

485403

NPV

sum of present value of cash flow

828040

Answer is C

750000 to 900000

20-

Answer is C

750000 to 900000

21-

Answer is B

FALSE

22-

Answer is B

FALSE

23-

Answer is E

none of the above

14-	none of the above
15-	cost of equity =risk free rate+(market risk premium)*beta	2+(6.5)*1.2	9.8	none of the above
16-	cost of debt = YTM*(1-tax rate)	5*(1-.35)	3.25
	cost of preferred stock = preferred dividend/price		7.55
17-	source	weight	cost	weight*cost
	debt	0.4	0.0325	0.013
	preferred	0.15	0.0755	0.011325
	common stock	0.45	0.098	0.0441
		WACC	sum of weight*cost	0.068
	Answer is none of the above
18-	not enough information to determine
19-	Year	cash flow	present value at 8.5% = cash flow/(1+r)^n r = 8.5%
	0	-401231	-401231
	1	420000	387096.8
	2	420000	356771.2
	3	620000	485403
	NPV	sum of present value of cash flow	828040
Answer is C	750000 to 900000
20-	Answer is C	750000 to 900000
21-	Answer is B	FALSE
22-	Answer is B	FALSE
23-	Answer is E	none of the above