Exam 3: Essential Concepts in Finance: Part B

If the cost of new common equity is higher than the cost of internal equity, why would a firm choose to issue new common stock?

If $52,000,000 of projects have already been financed, what is the marginal cost of capital of a $9,000,000 project?

What is the present value of $100,000 received in fifteen years with an annual discount rate of 5% compounded monthly?

Distinguish between business risk and financial risk.

Sometimes adding more debt to the capital structure will provide no appreciable benefit to shareholders even if the company has a low level of debt and the perceived level of risk would not increase if even more debt was added. Why?

Use the following information to answer the question below. -If the firm decided to finance itself completely with debt, calculate the WACC from the above information.

The beta of the market is:

How long will it take $10,000 to grow to $50,000 if it earns 10% interest compounded semiannually?

You borrow $95,000 for 12 years at an annual rate of 12%. What are the monthly payments required to amortize this loan?

The cost of preferred stock can best be described as:

The higher the coefficient of variation of possible operating income values:

Your parents have promised to give you $25,000 on your wedding day if you wait 10 years to get married. Your sister is getting married today. What amount should she receive in today's dollars to match your gift? The appropriate discount rate is 12%

To calculate the present value of an investment the following formula is used:

Jason has just started his first job. His dream in life is to own a cherry red corvette ten years from today. He is prepared to save. If a Corvette costs $80,000 today and the price is expected to increase 4% per year over the next ten years, how much will he need to deposit at the beginning of each month for the next 10 years to buy the Corvette if he can earn 8% interest compounded monthly on his deposit?

To calculate the present value of an annuity due you would take the present value of an ordinary annuity answer and whereas to calculate the future value of an annuity due you would take the future value of an ordinary annuity answer and .

Use the following information to answer the question below. As an investor, you are considering investing in the Locke Corporation (LC). According to your estimation there is a 75% probability that the return will be 17%, a 15% probability that the return will be 20%, and a 10% probability that the return will be 8%. You have also estimated LC's beta as 1.7.The market required rate of return is 15% and the risk free rate is 9%. -What is the coefficient of variation for LC?

Company XYZ purchased equipment and gave a three- year note with maturity value of $12,006. The interest rate on the note is 14% compounded semi- annually. Calculate how much they borrowed.

You want to start saving for retirement. If you deposit $2,000 each year at the beginning of the next 60 years and earn 11% on the investment, how much will you have when you retire?

If you (1) decrease your required return and (2) decrease the number of compounding periods, what effect would this have on your present value?

Company ABC has just borrowed $10,000 to buy a new piece of equipment. They will repay the loan by making equal payments at the end of each quarter for three years. The interest rate on the loan is 12% per annum compounded quarterly. a) What will be the size of their quarterly payment? b) How much will they pay in interest over the life of the loan?