Purchase Solution

Finance Problems: Shawhan Supply

Not what you're looking for?

1. J & B, Inc. has \$5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm's tax rate is 40%, what is the cost of debt to J & B?
a. 12.0%
b. 14.0%
c. 8.4%
d. 5.6%
2. Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt-10%; preferred stock-11%; and common stock-18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?
a. 18.0%
b. 13.0%
c. 10.0%i
d. 14.2%

3. Bender and Co. is issuing a \$1,000 par value bond that pays 9% interest annually. Investors are expected to pay \$918 for the 10-year bond. Bender will have to pay \$33 per bond in flotation costs. What is the cost of debt if the firm is in the 34% tax bracket?
a. 7.23%
b. 9.01%
c. 9.23%
d. 11.95%

4. Armadillo Mfg. Co. has a target capital structure of 50% debt and 50% equity. They are planning to invest in a project which will necessitate raising new capital. New debt will be issued at a before-tax yield of 12%, with a coupon rate of 10%. The equity will be provided by internally generated funds. No new outside equity will be issued. If the required rate of return on the firm's stock is 15% and its marginal tax rate is 40%, compute the firm's cost of capital.
a. 13.5%
b. 12.5%
c. 7.2%
d. 11.1%

5. Given the following information, determine the risk-free rate.
Cost of equity = 12%
Beta = 1.50
a. 8.0%
b. 7.5%
c. 7.0%
d. 6.5%

6. What is the present value of \$12,500 to be received 10 years from today? Assume a discount rate of 8% compounded annually and round to the nearest \$10.
a. \$5,790
b. \$11,574
c. \$9,210
d. \$17,010

Solution Summary

The solution explains some multiple choice questions in finance

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.