How do the institutional arrangements of local governments influence the services they provide?

It is your job to determine your company’s marginal cost of capital schedule. The firm’s current capital structure, which it considers optimal, consists of 30% debt, 20% preferred stock, and 50% common equity. The firm has determined that it can borrow up to $15 million in debt at a pre-tax cost of 7%, an additional $9 million at a pre-tax cost of 9%, and any additional debt funds at 11%. The firm expects to retain $25 million of its earnings; any additional income can be raised by issuing new common stock. The firm’s common stock currently trades at $30 per share, and it pays a $3.00 per share dividend. Dividends are expected to grow at a 5% annual rate over time. If the firm issues new common stock it will be sold to the public at a 10% discount. There will also be a $2.00 per share flotation cost. Preferred stock can be issued in unlimited quantities at a pre-tax cost of 12%. If the firm decides to raise more than $80m in capital, what is the cost of that capital? Assume a tax rate of 40%.

Question 12 options:

Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows:

a. Assume that Sequoia’s collection period is 60 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

Cash receipts

Accounts receivable balance

b. Now assume that Sequoia’s collection period is 45 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

What factors should be considered when deciding if a government should follow GAAP?

QUESTION 4

You are given the following data about expected returns on a security on the LUSE where different states of the economy have the same probability of occurrence:

State                                                  Return

Strong growth                                   9.0%

Normal growth                                  6.5%

Weak growth                                     2.5%

Recession                                         -4.5%

Required:

Compute and fully interpret the following for the investment:

1. The Expected return for the security.

                                                                                                            [3 Marks]

2. The volatility of the security returns using the semi deviation.

                                                                                                            [6 Marks]

3. Evaluate the security’s performance assuming a benchmark target rate of 3.5%.

                                                                                                            [4 Marks]

4. Explain the rationale behind the security performance evaluation method used in (c) above.

                                                                                                            [7 Marks]

Total 20 Marks

explain why the price of a bond and in the interest earned on the holding of a bond must move opposite direction.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow –$351,000 $66,800 $85,000 $142,000 $123,000 $82,200 Use the PI decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) PI Should it be accepted or rejected? Rejected Accepted

Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $220,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 21 percent tax rate. The required return on the company’s unlevered equity is 15 percent and the new fleet will not change the risk of the company.

a. What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. Suppose the company can purchase the fleet of cars for $655,000. Additionally, assume the company can issue $430,000 of five-year debt to finance the project at the risk-free rate of 6 precent. All principal will be repaid in one balloon payment at the end of the fifth year. What is the APV of the project?

Do you think companies should create a special marketing plan / strategy that focuses on first adopters and their adoption habits when a new product is launched? Why or why not?

Using the following data, record the transactions under the periodic method and then under the perpetual method. Calculate Cost of Goods under the periodic method, and make the entry to record cost of goods sold and update ending inventory. (You may find that using T-Accounts is helpful).
Jan 1 - Beginning Inventory is $100,000
Jan 3 - Inventory is purchased with a retail value of $40,000, terms 2/10, n/30
Jan 10 - Half of the inventory purchased on January 3 is returned.
Jan 12 - The amount due from the January 3 purchased is paid.
Jan 15 - Inventory is purchased with a retail value of $60,000
Jan 18 - Inventory costing $30,000 is sold for $60,000
Jan 30 - The amount due from the Jan 18 sale is received.
Jan 31 - Ending Inventory?

What is the free cash flow of a firm with revenues of $214 million, operating profit margin of 49%, tax rate of 21%, depreciation and amortization expense of $29 million, capital expenditures of $31 million, acquisition expenses of $10 million and change in net working capital of $11 million? Answer in millions, rounded to one decimal place (e.g., $245.63 = 245.6).

A $4,000 bond that has a coupon rate of 5.60% payable semi-annually and maturity of 7 years was purchased when the yield was 4.60% compounded semi-annually. What was the book value of the bond after 10 payments?

Valuation of a constant growth stock

Investors require a 17% rate of return on Levine Company's stock (i.e., r_s = 17%).

1. What is its value if the previous dividend was D₀ = $1.50 and investors expect dividends to grow at a constant annual rate of (1) -2%, (2) 0%, (3) 2%, or (4) 13%? Round your answers to two decimal places.

(1) $  
(2) $  
(3) $  
(4) $  

b. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate were (1) 15% or (2) 20%? Are these reasonable results? (please select one)

1. The results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.
2. The results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.
3. These results show that the formula does not make sense if the expected growth rate is equal to or less than the required rate of return.
4. The results show that the formula does not make sense if the required rate of return is equal to or less than the expected growth rate.
5. The results show that the formula does not make sense if the required rate of return is equal to or greater than the expected growth rate.

c. Is it reasonable to think that a constant growth stock could have g > r_s? (please select one)

1. It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return.
2. It is not reasonable for a firm to grow indefinitely at a rate lower than its required return.
3. It is not reasonable for a firm to grow indefinitely at a rate equal to its required return.
4. It is not reasonable for a firm to grow indefinitely at a rate higher than its required return.
5. It is reasonable for a firm to grow indefinitely at a rate higher than its required return.

Next​ year, BHH Co. is expected to pay a dividend of $2.77 per share from earnings of $4.82 per share. The equity cost of capital for BHH is 11.6%. What should​ BHH's forward​ P/E ratio be if its dividend growth rate is expected to be 3.5%

for the foreseeable​ future?

The forward​ P/E ratio is?  (Round to two decimal​ places.)

Pearl Corp. is expected to have an EBIT of $2,900,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $130,000, and $170,000, respectively. All are expected to grow at 19 percent per year for four years. The company currently has $15,000,000 in debt and 1,300,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company’s WACC is 8.5 percent and the tax rate is 21 percent

What is the price per share of the company's stock

Share price?