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Finance - YTM, WACC, Plowback and more

A publicly company is entirely financed with equity. Its WACC is 14% Management wishes to bring the plowback ratio from 0% to 100% and invest earning into a capital project that will return 12.5%. What will be the impact on management's new dividend policy?

Options:

- Moving the plowback ratio to 100% will add shareholder value
- Moving the plowback ratio to 100% will erode shareholder value
- Keeping the plowback ratio at 0% will erode shareholder value
- Not enough information to answer this question

Napal Corporation wants to calculate its weighted average cost of capital (WACC). It has $500 million in B-rated bonds at an average rate of 5.43% 374 million shares of common stock outstanding @ 1par, and retained earning of $230 million. The expected rate of retun in the stock market for equities of similar risk and characteristics is 10%. What is Nepal's WACC?
Options:

- 5.43%
- 7.93%
- 10%
- 15.43%

Nepal's $500 million of 30-year bonds outstanding was issue at a coupon rate of 8%. On 5/01/05, two years after insurance, the market rate for bonds of similar characteristics falls to 5%. What should the market price of Nepal bonds on the bond market at 5/1/05.

Options:

- 66.85%
- 100%
- 144.69
- 146.12

An A+ rated bond matured in 15 years, has 9.5% coupon rate, and is currently priced at 115.98 what is the YTM of this bond?
Options:

- 6.605%
- 7.687%
- 8.081%
- 9.500%

Solution Preview

A publicly company is entirely financed with equity. Its WACC is 14% Management wishes to bring the plowback ratio from 0% to 100% and invest earning into a capital project that will return 12.5%. What will be the impact on management's new dividend policy?

Options:

? Moving the plowback ratio to 100% will erode shareholder value
Reason: The return on invested capital is less the WACC, therefore the shareholder value will erode.

Napal Corporation wants to ...

Solution Summary

This solution explains YTM, WACC, Plowback and more.

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