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Yield to maturity and coefficient of variation, IRR

30. A project's cash flows have a beta of 1.2, a standard deviation of $200, and a coefficient of variation of 0.40. What is the expected cash flow?

a) $80
b) $167
c) $240
d) $500

37. The coupon rate on a debt issue is 12%. If the yield to maturity on the debt is 9.33%, what is the after-tax cost of existing debt if the firm's tax rate is 34%?

a) 3.17%
b) 4.08%
c) 6.16%
d) 7.92%

38. Assume a project has earnings before depreciation and taxes of $10,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project?

a) $47,000
b) $19,000
c) a loss of $21,000
d) none of the above

39. You require an IRR of 13% to accept a project. If the project will yield $10,000 per year for 6 years, what is the maximum amount that you would be willing to invest in the project?

a) less than $25,000
b) more than $25,000 and less than $30,000
c) more than $30,000 and less than $35,000
d) more than $35,000

Solution Preview

30. A project's cash flows have a beta of 1.2, a standard deviation of $200, and a coefficient of variation of 0.40. What is the expected cash flow?

a) $80
b) $167
c) $240
d) $500

Answer: D

Coefficient of variation = Standard deviation/Mean
0.40 = 200/Mean
Mean = 500

37. The coupon rate on a debt issue is 12%. If the yield to maturity on the debt is 9.33%, what is the after-tax cost of existing debt if the firm's tax rate is 34%? ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the expected cash flow, what is the after-tax cost of existing debt if the firm's tax rate is 34%, what are the after-tax cash flows for the project, and what is the maximum amount that you would be willing to invest in the project.

$2.19