Business Finance
Please complete the Financial Problems

Question Description

Please answer the attached questions in the word document.

you can type the answers in the Word document.

If you have any issues you can use the book references.

These are from chapters 9, 10, 12

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MANAGERIAL FINANCE: FIN 350 Spring Semester 2019 Assignment Includes: Chapter Nine: The Cost of Capital Chapter Twelve: Leverage and Capital Structure (pages as listed on course syllabus) Chapter Ten: Capital Budgeting Techniques Name: __________________________________ Instructions: You may complete the Assignment by typing in the answers of your choice into the Microsoft Word file. Thank you! A. TRUE / FALSE QUESTIONS Enter “True” or “False” on the blank preceding each question. ______ 1. In general, a firm should invest only in projects that have a rate of return that is lower than the firm’s cost of capital. ______ 2. The firm’s cost of capital is measured on a pre-tax basis. ______ 3. Typically, the after-tax cost of long-term debt for a firm is greater than the cost of preferred stock or common stock. ______ 4. There are two forms of common stock financing for a firm: 1) Retained Earnings; and 2) new issues of common stock. ______ 5. A firm’s “Weighted Average Cost of Capital” (WACC) typically increases as the volume of new capital raised within a given time period increases. ______ 6. Breakeven analysis is used to determine the level of operations necessary to cover all operating costs. ______ 7. An increase in either the firm’s fixed costs (FC) or its variable costs (VC) will cause the firm’s operating breakeven point (OBP) in “units” to decrease. ______ 8. In general, non-U.S. companies have much higher levels of indebtedness than do firms headquartered in the U.S. ______ 9. ABC Company, Inc. is considering two “independent” capital budgeting projects. If the firm accepts one of these independent projects, then the other independent project will be eliminated from consideration. ______ 10. The “Net Present Value” (NPV) capital budgeting method measures how long (in years and months) that it takes to recover a project’s initial investment, based on the project’s cash inflows. ______ 11. If a project’s payback period is greater than the maximum acceptable payback period, then the project should be accepted. ______ 12. A weakness of the “payback period” capital budgeting method is that the appropriate or maximum payback period is a subjectively determined value. ______ 13. When using the “Net Present Value” (NPV) method of capital budgeting analysis, a firm will undertake a given project only if the present value of the cash flows generated by the investment is less than the initial cost of the investment at t = 0. 1 ______ 14. In “Net Present Value” (NPV) analysis, the discount rate or interest rate used to discount the project’s cash flows back to the present time is the minimum return that must be earned on a project to satisfy the firm’s investors. ______ 15. When using the “Profitability Index” (PI) analysis method, the decision rule is to invest in a project that has a Profitability Index value less than 1.0 . B. MULTIPLE CHOICE QUESTIONS For each question, enter the letter of the best response on the blank preceding the question. ______ 16. The process of evaluating and selecting long-term investments for the firm is known as A. B. C. D. correlation. capital budgeting. operating costs. capital structure. ______ 17. Each of the following is a typical source of long-term capital for a firm EXCEPT A. B. C. D. Accounts Payable. Preferred Stock. Long-Term Debt. Common Stock. ______ 18. When calculating a firm’s “Weighted Average Cost of Capital” (WACC), the cost of each type of capital is weighted by A. B. C. D. the firm’s beta value. the current inflation rate in the economy. the bank’s prime lending rate. its proportion in the firm’s capital structure. ______ 19. The “weights” in the “Weighted Average Cost of Capital” (WACC) formula A. B. C. D. E. must sum to 1.0 or 100%. must be non-negative. must include at least three different types of financing. A and B and C. A and B. ______ 20. __________________ results from the use of fixed-cost assets or fixed-cost funds to magnify the returns to the firm’s owners. A. B. C. D. Correlation Leverage Beta The Co-efficient of Variation (CV) 2 ______ 21. At the “Operating Breakeven Point” (OBP), A. B. C. D. “Operating Profit” (EBIT) is equal to zero. “Gross Profit” equals “Net Profit.” “Total Assets” equals “Total Sales Revenue.” “Debt” financing equals “Equity” financing. ______ 22. _______________ costs vary directly with the level of “Sales” and are a function of volume, rather than time. A. B. C. D. Fixed Non-operating Variable Discriminant ______ 23. Each of the following is an example of a “fixed” cost for a manufacturing firm EXCEPT A. B. C. D. “Rent Expense” for the distribution warehouse. “Property Tax Expense” for the corporate office. “Insurance Expense” for the firm’s fleet of semi trucks. “Shipping Cost” for products sold to the customers. ______ 24. Each of the following is a possible source of equity financing for a corporation EXCEPT A. B. C. D. Long-Term Bonds Preferred Stock Common Stock Retained Earnings ______ 25. A(n) ____________________ expenditure is an outlay made by a firm that is expected to produce benefits within one year. A. B. C. D. capital operating unbudgeted collateral ______ 26. For “independent” capital budgeting projects, A. B. C. D. E. accepting one project does not eliminate the other projects from consideration. each project has cash flows that are unrelated to one another. if one project is done, then the other project must be done, also. A and B and C. A and B. ______ 27. A firm that needs increased production capacity could obtain it by A. expanding its current manufacturing plant. B. acquiring another company that has suitable manufacturing facilities for the products which the acquiring firm wishes to have made. C. contracting with an outsider firm to manufacture the needed products (i.e., outsourcing). D. A and/or B and/or C. E. A and/or B. 3 ______ 28. Typically, firms operate under _____________________, with only a specified amount of funds (i.e., a finite amount) available for capital expenditures in a given year. A. B. C. D. capital rationing mutual exclusivity outsourcing parallel investment cycles ______ 29. Each of the following is an advantage or benefit of using the payback period method to analyze a capital budgeting decision EXCEPT A. B. C. D. it is a simple and intuitive method. it explicitly takes into account the “time value of money” in its calculations. it considers cash flows, rather than accounting profits. it is easy to use as a supplement or in conjunction with other capital budgeting methods. ______ 30. Seymore Distribution, Inc. is considering the purchase of one new semi tractor. Option A has a “Net Present Value” (NPV) of $10,599; Option B has a NPV of $15,100. With Option A and Option B being mutually exclusive, the firm should choose _________, as this choice will add more value to the firm. A. B. C. D. Option A Option B both Option A and Option B neither Option A nor Option B C. CALCULATION SECTION Instructions: In this section, please show all calculations. Partial credit will be given wherever possible, when your calculations are shown and they are completed correctly. 31.—33. A firm is evaluating a capital budgeting proposal which has an initial investment at t = 0 of $55,000. This project has the following has inflows: $20,000 in Year 1; $25,000 in Year 2; and $12,000 in Year 3. What is the payback period for this project? 34.—39. Assume that you are a financial analyst for Tangshan Mining Company and are given the following information about the firm’s new project: the project’s initial after-tax cost at t = 0 is $8,000,000 and the project is expected to provide after-tax operating cash inflows as follows: Year One Two Cash Inflow: $2,800,000 $2,900,000 4 Three Four $3,200,000 $1,800,000 a. Calculate the payback period for this project. 1. If the maximum acceptable payback period is 3 years, should this project be accepted? Why or why not? b. Assume that the firm’s “Weighted Average Cost of Capital” (WACC) is 6%. Calculate the “Net Present Value” (NPV) for the above project. 1. Based on your NPV calculations above, should this project be accepted? Why or why not? 40.—41. Calculate the after-tax cost of debt for a firm, which has a 21% marginal tax rate and a pre-tax cost of debt of 7%. 42.—43. A firm has a beta of 1.5. The market return equals 9% and the risk-free rate of return equals 4%. Calculate the estimated cost of common-stock equity funding. 5 44.—45. Smith Electronics, Inc. has determined its cost of each source of capital and its optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Long-Term Debt Preferred Stock Common Stock Equity Target Market Proportions After-Tax Cost 40% 5% 55% 4% 6% 13% Calculate the “Weighted Average Cost of Capital” (WACC) for Smith Electronics using the information provided above. 46.—49. Wheaten Enterprises, Inc. has fixed operating costs of $125,000; the selling price per unit of its product is $175, and its variable cost per unit for this product is $100. a. Calculate the firm’s operating breakeven point in units. b. What is the firm’s breakeven point in sales dollars? 50. American Apparel, Inc. has fixed annual operating costs of $325,000. The average selling price per unit is $45.00 and the variable cost per unit is $34.00. Based on this information, calculate the breakeven sales level in units. 6 ...
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Final Answer


True or false questions
1. True
2. True
3. Trues
4. False
5. True
6. True
7. True
8. False
9. False
10. False
11. True
12. False
13. False
14. True
15. True
Multiple choice questions
16. B
17. A
18. D

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