Bcor 340 Final Questions and complete solutions

Bcor 340 Final Western electric has 21,000 shares of common stock outstanding at a price per share of $61 and a rate of return of 15.6%. The firm has 11,000 shares of $8 preferred stock outstanding at price of $48 a share. the outstanding debt has a total face value of $275,00 and currently sells for 104 percent of face. the yield to maturity on the debt is 8.81 percent. what is the firms weighted average cost of capital if the tax rate is 35% ANSWER: Common stock: 21,000 × $61 = $1,281,000 Preferred stock: 11,000 × $48 = $528,000 Debt: 104% × $275,000 = $286,000 Total market value = $1,281,000 + 528,000 + 286,000 = $2,095,000 WACC = ($1,281,000/$2,095,000)(.156) + ($528,000/$2,095,000)($8/$48) + ($286,000/$2,095,000)(.0881)(1 -.35) = .1452, or 14.52 percent Which of the following statements are correct? A. the NPV is a measure of profits expressed in todays dollars B. The NPV is positive when the required return exceeds the internal rate of return. C. If the initial cost of a project is increased, the NPV of that project will also increase. D. If the internal rate of return equals the required return, the NPV will equal zero. E. NPV is equal to an investment's cash inflows discounted to today's dollars. ANSWER: D. if the internal rate of return equals the required return, the NPV will equal zero Which one of the following bonds is the most sensitive to changes in market interest rates? A. 5-year, zero coupon B. 5-year, 5 percent coupon C. 5-year,