Fin 534 – homework chapter 9


FIN  534 – Homework Chapter 9

Rating A

1. Bankston Confirmation forecasts that if all of its material financial policies are followed, its designed cardinal budget would be so big that it would feel to upshot new base hoard. Since new hoard has a better absorb than retained hues, Bankston would pretend to eschew issuing new hoard. Which of the aftercited actions would REDUCE its scarcity to upshot new base hoard?

a. Growth the dividend payout narration for the upcoming year.

b. Growth the percentage of something-due in the target cardinal composition.

c. Growth the designed cardinal budget.

d. Weaken the sum of short-term bank something-due in arrange to growth the present narration.

e. Weaken the percentage of something-due in the target cardinal composition.

 

2. LaPango Inc. estimates that its middle-imperil projects feel a WACC of 10%, its below-middle imperil projects feel a WACC of 8%, and its above-middle imperil projects feel a WACC of 12%. Which of the aftercited projects (A, B, and C) should the association confirm?

a. Project B, which is of below-middle imperil and has a give-back of 8.5%.

b. Project C, which is of above-middle imperil and has a give-back of 11%.

c. Project A, which is of middle imperil and has a give-back of 9%.

d. None of the projects should be confirmed.

e. All of the projects should be confirmed.

 

3. Which of the aftercited statements is CORRECT?

a. When careful the absorb of preferred hoard, a association scarcitys to direct for taxes, accordingly preferred hoard dividends are deductible by the paying confirmation.

b. All else resembling, an growth in a association’s hoard appraise succeed growth its final absorb of retained hues, rs.

c. All else resembling, an growth in a association’s hoard appraise succeed growth its final absorb of new base equity, re.

d. Since the coin is early serviceable, the after-tax absorb of retained hues is usually fur inferior than the after-tax absorb of something-due.

e. If a association’s tax rebuke growths but the YTM on its noncallable bonds dross the similar, the after-tax absorb of its something-due succeed drop.

 

4. Which of the aftercited statements is CORRECT?

a. Since something-due cardinal can principle a association to go insolvent but equity cardinal cannot, something-due is imperilier than equity, and thus the after-tax absorb of something-due is frequently main than the absorb of equity.

b. The tax-adjusted absorb of something-due is frequently main than the profit rebuke on something-due, supposing the association does in deed pay taxes.

c. If a association assigns the similar absorb of cardinal to all of its projects careless of each project’s imperil, then the association is pretendly to exclude some trustworthy projects that it in-issue should confirm and to confirm some imperily projects that it should exclude.

d. Accordingly no flotation absorbs are required to get cardinal as retained hues, the absorb of retained hues is generally inferior than the after-tax absorb of something-due.

e. Better flotation absorbs contribute to weaken the absorb of equity cardinal.

 

5. Cranberry Corp. has two resistances of resembling size: a computer manufacturing resistance and a grounds processing resistance. Its CFO believes that stand-alone grounds processor companies usually feel a WACC of 8%, occasion stand-alone computer manufacturers usually feel a 12% WACC. He so believes that the grounds processing and manufacturing resistances feel the similar imperil as their usual peers. Consequently, he estimates that the composite, or oppidan, WACC is 10%. A consultant has suggested using an 8% hurdle rebuke for the grounds processing resistance and a 12% hurdle rebuke for the manufacturing resistance. However, the CFO disagrees, and he has assigned a 10% WACC to all projects in twain resistances. Which of the aftercited statements is CORRECT?

a. Occasion the judgment to use honorable one WACC succeed termination in its confirming balance projects in the manufacturing resistance and fewer projects in its grounds processing resistance than if it followed the consultant’s advice, this should not pretend the firm’s inward appraise.

b. The judgment not to direct for imperil media, in issue, that it is friendly the grounds processing resistance. Therefore, that resistance is pretendly to beseem a bigr sunder of the conjoined association balance age.

c. The judgment not to direct for imperil media that the association succeed confirm too manifold projects in the manufacturing resistance and too few in the grounds processing resistance. This succeed direct to a abatement in the firm’s inward appraise balance age.

d. The judgment not to imperil-direct media that the association succeed confirm too manifold projects in the grounds processing profession and too few projects in the manufacturing profession. This succeed direct to a abatement in its inward appraise balance age.

 

e. The judgment not to imperil direct media that the association succeed confirm too manifold projects in the manufacturing profession and too few projects in the grounds processing profession. This may pretend the firm’s cardinal composition but it succeed not pretend its inward appraise