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FIN 516 Advanced Managerial Finance Week 4 Quiz Answer

FIN 516 Advanced Managerial Finance Week 4 Quiz Answer

FIN 516 Advanced Managerial Finance Week 4 Quiz Answer

FIN 516 Advanced Managerial Finance Week 4 Quiz Answer

FIN 516 Advanced Managerial Finance Week 4 Quiz Answer

FIN 516 Advanced Managerial Finance Week 4 Quiz Answer
1. Question : (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?
(a) 40.61%
(b) 42.75%
(c) 45.00%
(d) 47.37%
(e) 49.74%

2. Question : (TCO F) Chocolate Factory’s convertible debentures were issued at their $1,000 par value in 2009. At any time prior to maturity on February 1, 2029, a debenture holder can exchange a bond for 25 shares of common stock. What is the conversion price, Pc?
(a) $40.00
(b) $42.00
(c) $44.10
(d) $46.31
(e) $48.62

3. Question : (TCO B) Ang Enterprises has a levered beta of 1.10, its capital structure consists of 40 percent debt and 60 percent equity, and its tax rate is 40 percent. What would Ang’s beta be if it used no debt, i.e., what is its unlevered beta?
(a) 0.64
(b) 0.67
(c) 0.71
(d) 0.75
(e) 0.79

4. Question : (TCO B) Firm L has debt with a market value of $200,000 and a yield of nine percent. The firm’s equity has a market value of $300,000, its earnings are growing at a rate of five percent, and its tax rate is 40 percent. A similar firm with no debt has a cost of equity of 12 percent. Under the MM extension with growth, what is Firm L’s cost of equity?
(a) 11.4%
(b) 12.0%
(c) 12.6%
(d) 13.3%
(e) 14.0%

5. Question : (TCO A) Which of the following statements is CORRECT?
(a) An option’s value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can’t sell for more than its exercise value.
(b) As the stock’s price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases.
(c) Issuing options provides companies with a low cost method of raising capital.
(d) The market value of an option depends in part on the option’s time to maturity and also on the variability of the underlying stock’s price.
(e) The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.

6. Question : (TCO F) Suppose the September CBOT Treasury bond futures contract has a quoted price of 89-09. What is the implied annual interest rate inherent in this futures contract? Assume this contract is based on a 20 year Treasury bond with semi-annual interest payments. The face value of the bond is $1000, and the semi-annual coupon payments are $30. The annual coupon rate on the bonds is $60 per bond (or 6%). The futures contract has 100 bonds.
(a) 6.32%
(b) 6.65%
(c) 7.00%
(d) 7.35%
(e) 7.72%

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Fin 516 Advanced Managerial Finance Week 1 Homework Assignment Answer

Fin 516 Advanced Managerial Finance Week 1 Homework Assignment Answer

Fin 516 Advanced Managerial Finance Week 1 Homework Assignment Answer

Fin 516 Advanced Managerial Finance Week 1 Homework Assignment Answer

Fin 516 Advanced Managerial Finance Week 1 Homework Assignment Answer

Fin 516 Advanced Managerial Finance Week 1 Homework Assignment Answer
Chapter 14, Residual Dividends
1. If Middlesex increases its cash dividends in 2012 at the same rate of growth as its Net Income rate, what will be the total 2012 dividend payout in Dollars?

2. What is the 2012 dividend payout ratio if the company increases its dividends at 8%?

3. If the company follows a residual dividend policy, and maintains its 35% Debt level in its capital structure, and invests in the $12.0 Million capital budget in 2012, what would be the Residual Dividend level (in Dollars) in 2012? What would be this Residual Dividends payout ratio?

4. How much additional capital (Debt and/or Equity) will the company have to raise from outside sources in 2012 if it invests in this capital project, and follows a residual dividend policy?

5.What would be the prudent dividend policy for 2012?: Pay dividends at the current dividend growth rate of 8%, or pay the residual dividend amount.

Problem 19-3 (Chapter 19) on Warrants
Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $25.
a. Calculate the exercise value of the firm’s warrants if the common sells at each of the following prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant’s exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.)
b. Assume the firm’s stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 50 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm’s straight bonds yield 12%. Assume that each warrant will have a market value of $3 when the stock sells at $20. What coupon interest rate, and dollar coupon, must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.)

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