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Basic Concepts in Accounting Problems

Need help with the following 6 problems for a final review:

4) What is the NPV for the following project if its cost of capital is 12 percent and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and ($1,300,000) in year 4?
A) $(1,494,336)
B) $1,494,336
C) $158,011
D) Two of the above

10) A firm has a beta of 1.8. The market return equals 16 percent and the risk free rate of return equals 6 percent. The estimated cost of common stock equity is:

17) Tangshan Mining has common stock at par of $200,000, paid in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm's legal capital is defined as the total of par value and paid-in-capital of common stock, the firm could pay out ________ in cash dividends without impairing its capital.
A) $280,000
B) $400,000
C) $480,000
D) $600,000

26) A firm has a cash conversion cycle of 60 days. Annual outlays are $12 million and the cost of negotiated financing is 12 percent. If the firm reduces its average age of inventory by 10 days, what is the annual savings? (use a 360 day year and remember that first, you have to calculate the daily expenditure.)
(a) $104,000
(b) $144,000
(c) $28,800
(d) $40,000

28) The cost of giving up a cash discount under the terms of sale 2/10 net 90 (assume a 360 day year) is
A. 9.2 percent.
B. 8.3 percent.
C. 10.7 percent.
D. 6.0 percent.

32) A firm has an outstanding bond with a $1,000 par value that is convertible at $40 per share of common stock. If the current market value of common stock per share is $45, the conversion value of the bond is
A. $ 880.
B. $1,000.
C. $1,125.
D. $1,200.

Solution Preview

4) What is the NPV for the following project if its cost of capital is 12 percent and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and ($1,300,000) in year 4?

NPV=-5000000+1800000/(1+12%)^1+1900000/(1+12%)^2+1700000/(1+12%)^3-1300000/(1+12%)^4
NPV=-1494335.86
Option A is correct
A) $(1,494,336)

10) A firm has a beta of 1.8. The market return equals 16 percent and the risk free rate of return equals 6 percent. The estimated cost of common stock equity is:
Risk Free rate=rf=6%
Market return=rm=16%
Beta=1.8
Cost ...

Solution Summary

Solutions select the correct options with suitable working.

$2.19