Alpha Manufacturing has the following financial information for the current year and projected for next year. Calculate its projected free cash flow to equity. $\begin{array} { l r r } & { \text { Current } } \\ & \text { year } & \text { Prajected } \\ \text { EBIT } & 1,500 & 1,800 \\ \text { Operating a5sets } & 3,000 & 3,400 \\ \text { Operating liabilities } & 200 & 220 \\ \text { Tetal debt } & 1,500 & 1,800 \\ \text { Interest rate an debt } & 6 \% & 6 \% \\ \text { Trax rate } & 25 \% & 25 \% \end{array}$

A) $893 B) $983 C) $1,081 D) $1,189 E) $1,308 A) $893 B) $983 C) $1,081 D) $1,189 E) $1,308

Zeta Technologies has the following projections. It has no non-operating assets. Calculate Zeta's intrinsic value of equity using the FCFE model. $\begin{array}{l} \begin{array} { l } \\ \\ \text { FCFE }\\ \text { Total debt }\\ \text {Interest rate on debt }\\ \text {Tax rate}\\ \text { Long-term growth rate}\\ \text { Required return on equity }\\ \end{array} \begin{array} { l } \text { Cunent }\\ \text { Year } & \text { Year 1 } & \text { Year 1 } & \text { Year 3 } \\ NA& 1,000 & 1,200 & 1,248 \\ 3,000 & 3,900 & 4,290 & 4,462 \\ 6 \% & 6 \% & 6 \% & 6 \% \\ 25 \% & 25 \% & 25 \% & 25 \%\\ 4\%\\ 9\% \end{array} \end{array}$

A) $21,165 B) $23,282 C) $25,610 D) $28,171 E) $30,988 A) $21,165 B) $23,282 C) $25,610 D) $28,171 E) $30,988

Exam 17: Dynamic Capital Structures and Corporate Valuation

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10 years ago, the City of Melrose issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6% of the face amount. New 20-year, 6%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold. What is the net present value of the refundingσ Note that cities pay no income taxes, hence taxes are not relevant.

(Multiple Choice)

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Question 41

Kitto Electronics Data Kitto Electronics has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%. In order to support growth, Kitto must reinvest 20% of its EBIT in net operating assets. Kitto has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of 11%. -Refer to data for Kitto Electronics. According to the compressed adjusted present value model, what is Kitto's unlevered value?

(Multiple Choice)

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Question 42

Alpha Manufacturing has the following financial information for the current year and projected for next year. Calculate its projected free cash flow to equity. Current year Prajected EBIT 1,500 1,800 Operating a5sets 3,000 3,400 Operating liabilities 200 220 Tetal debt 1,500 1,800 Interest rate an debt 6\% 6\% Trax rate 25\% 25\%

(Multiple Choice)

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Question 43

According to MM, in a world without taxes the optimal capital structure for a firm is approximately 100% debt financing.

(True/False)

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Question 44

The present value of the free cash flows discounted at the unlevered cost of equity is the value of the firm's operations if it had no debt.

(True/False)

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Question 45

NorthWest Water (NWW) Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called. -Refer to the data for NorthWest Water (NWW). The amortization of flotation costs reduces taxes and thus provides an annual cash flow. What will the net increase or decrease in the annual flotation cost tax savings be if refunding takes place?

(Multiple Choice)

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Question 46

If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate.

(True/False)

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Question 47

MM showed that in a world without taxes, a firm's value is not affected by its capital structure.

(True/False)

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Question 48

Which of the following statements concerning the compressed adjusted present value (APV) model is NOT CORRECT?

(Multiple Choice)

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Question 49

Zeta Technologies has the following projections. It has no non-operating assets. Calculate Zeta's intrinsic value of equity using the FCFE model. FCFE Total debt Interest rate on debt Tax rate Long-term growth rate Required return on equity Cunent Year Year 1 Year 1 Year 3 NA 1,000 1,200 1,248 3,000 3,900 4,290 4,462 6\% 6\% 6\% 6\% 25\% 25\% 25\% 25\% 4\% 9\%

(Multiple Choice)

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Question 50

Showing 41 - 50 of 50

According to MM, in a world without taxes the optimal capital structure for a firm is approximately 100% debt financing.

The present value of the free cash flows discounted at the unlevered cost of equity is the value of the firm's operations if it had no debt.

If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate.

MM showed that in a world without taxes, a firm's value is not affected by its capital structure.

Which of the following statements concerning the compressed adjusted present value (APV) model is NOT CORRECT?

An Overview of Financial Management and the Financial Environment

Risk and Return-Part I

Risk and Return-Part II

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Criteria

Capital Budgeting-Estimating Cash Flows and Analyzing Risk

Real Options

Distributions to Shareholders-Dividends and Repurchases

Capital Structure Decisions

Initial Public Offerings-Investment Banking: and Financial Restructuring

Lease Financing

Hybrid Financing Preferred Stock-Warrants and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Other Topics in Working Capital Management

Enterprise Risk Management

Bankruptcy-Reorganization and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Basic Financial Tools: A review

Pension Plan Management

Financial Management in Not for Profit Businesses

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