Use the information to answer the following questions. • The Global Advertising Company has a marginal tax rate of 40%. • The company can raise debt at a 8% interest rate. • The last dividend paid by Global was $1.10. Global’s common stock is selling for $7.93 per share, and its expected growth rate in earnings and dividends is 4%. • Global plans to finance all capital expenditures with 20% debt and 80% equity.

What is the after-tax cost of debt for the company?

What is Global's cost of common stock if it can use retained earnings rather than issue new common stock?

What is the firm's weighted average cost of capital if the firm has sufficient retained earnings to fund the equity portion of its capital budget?

Two independent projects are available: Project A has a rate of return of 19%, while project B’s return is 18%. These two projects are equally risky and also about as risky as the firm’s existing assets. Which projects should the company accept?

Assume that the floatation cost of new stock issuing is 1.5%. What is Global's cost of common stock if it has to issue new common stock?

green & red manufactures two products, Product 2 and Product 8. Product 8 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product 2. Product 8 is the more complex of the two products, requiring two hours of direct labour time per unit to manufacture compared to one hour of direct labour time for Product 2. Product 8 is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $450,000 in manufacturing overhead costs and produce 7,500 units of Product 8 and 30,000 units of Product 2 during the current year. Unit costs for materials and direct labour are:

A perfectly competitive airline is flying between two cities. The airline has the following costs associated with the flight:

Crew $5000

Plane rental $2000

Fuel $1000

Landing fee $1000

The airline has an average of 40 passengers paying an average of $200 for this flight.

Do you think the airline should be flying between the two cities? Evaluate from a short-run and long-run perspective. Draw two graphs, the first one showing the short run and the second one showing the long run. The graphs are not to be number specific.

**Please answer all parts of the question!**

Hero Manufacturing has 6 million shares of common stock outstanding. The current share price is $72 and the book value per share is $7. The company also has two bond issues outstanding, both with semiannual coupons. The first bond issue has a face value $70 million and a coupon of 7 percent and sells for 97 percent of par. The second issue has a face value of $50 million and a coupon of 8 percent and sells for 106 percent of par. The first issue matures in 22 years, the second in 6 years.

a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)

b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)

Gold Diggers, Inc. has 350,000 shares of common stock, currently trading at $26/share. The common stock of Gold Diggers, Inc. is expected to generate a dividend of $2.00/share next year, and it has a Beta calculated at 1.2. It also has 100,000 shares of preferred stock, trading at $50/share. The preferred stock pays dividends of 7%. Finally, Gold Diggers, Inc. has 30,000 bonds currently trading at $960/bond. The coupon rate is 5%, and the bonds will mature in 8 years.

Gold Diggers, Inc. expects its dividends to grow at a rate of 6%/year, and it is in a 34% tax bracket. It estimates that the risk-free rate of return is 3% and the market rate of return is 7%.

Calculate the WACC for Gold Diggers, Inc. Be sure to show all your work. NOTE: When calculating the cost of equity, compute the cost using the CAPM method and the DCF (Dividend Constant Growth Method) and average the two.

Flavortech Inc. expects EBIT of $3,000,000 for the current year. The firm's capital structure consists of 30 percent debt and 70 percent equity, and its marginal tax rate is 40 percent. The cost of equity is 14 percent, and the company pays a 10 percent rate on its $5,000,000 of long-term debt. One million shares of common stock are outstanding. For the next year, the firm expects to fund one large positive NPV project costing $1,200,000, and it will fund this project in accordance with its target capital structure. If the firm follows a residual distribution policy (with all distributions in the form of dividends) and has no other projects, what is its expected dividend payout ratio?

4. The following procedure performed by a candy manufacturer is the best example of a product level activity within a manufacturing cost hierarchy:

Select one:

a. Resetting the packaging equipment to wrap a special 36-count Halloween package

b. Developing an advertising campaign for a special Halloween candy

c. Inspecting the quality of the candy produced during one of the special Halloween package production runs

d. Cleaning the mixing machine for the next production run of candy, a special Halloween candy

8. Which of the following factors is not an advantage of preparing operating budgets?

Select one:

a. Improved basis of performance evaluation

b. Improved planning

c. Improved communications

d. Increased employee loyalty

11. Indicate whether each phrase is more descriptive of financial accounting or managerial accounting.

(a) May be subjective

Financial accounting

Managerial accounting

(b) Often used to state corporate goals

Financial accounting

Managerial accounting

(c) Typically prepared quarterly or annually

Financial accounting

Managerial accounting

(d) May measure time or customer satisfaction

Financial accounting

Managerial accounting

(e) Future oriented

Financial accounting

Managerial accounting

(f) Has a greater emphasis on cost-benefit analysis

Financial accounting

Managerial accounting

(g) Keeps records of assets and liabilities

Financial accounting

Managerial accounting

(h) Highly aggregated statements

Financial accounting

Managerial accounting

(i) Must conform to external standards

Financial accounting

Managerial accounting

(j) Special-purpose reports

Financial accounting

Managerial accounting

(k) Decision-making tool

Financial accounting

Managerial accounting

(l) Income statement, balance sheet, and statement of cash flows

Financial accounting

Managerial accounting

1. [7 – 3] In terms of acting, Betty White is known for starring on 3 different long running television shows (The Mary Tyler Moore Show, The Golden Girls and Hot In Cleveland). Those three shows averaged 23.7 shows per season. However, it seems that shows are producing few episodes per season, and Betty decides to put that to the test. She takes a random sample of long running television programs and determined the number of episodes in their most recent season below:

13, 26, 23, 18, 24, 18, 19, 13, 13, 15, 16, 21, 20, 16, 26

You may assume that the data comes from a normal distribution.

1. Construct a 95% confidence interval for the average number of episodes per season for a television program

2. Based on your answer to (a), can we say that the average number of episodes per season is lower than the value 23.7, the average number of episodes for the shows that Betty starred in? Explain.

2. [5] Between 2006 and 2009, Betty appeared in 23 episodes of The Bold and The Beautiful. The work was quite different from her time on sitcoms. This led her to think about the following hypotheses:

H₀: Soap opera acting is the same difficulty as sitcom acting

H_a: Soap opera acting is harder than sitcom acting

Describe what a Type I error would look like in the context of this scenario.

3. [10] While playing the role of Catherine Piper on Boston Legal, Betty White “killed” the character of Bernard Ferrion (played by Leslie Jordan). Catherine ended being found not guilty, but it led Betty to wonder: are men and women treated differently when convicted of murder? As a result, Betty took two random samples of convicted murderers, given below, and determined how long the sentences were.

Men: 25, 30, 50, 25, 20, 30, 40, 25, 30, 25, 75, 25, 15

Women: 25, 15, 20, 15, 20, 25, 15, 30, 25, 40

You may assume the data comes from normal distributions. At the .05 level of significance, is there evidence to show that men get longer sentences for murder than women?

4. [10] Betty is a common diminutive of the name Elizabeth. As a result, many people think Betty White’s real first name is Elizabeth – but how large a proportion? Betty took a random sample of 265 people and found that 147 of them believe that Betty White’s real first name is Elizabeth. At the .05 level of significance, is there evidence that a majority (more than 50%) of all people think Betty White’s real first name is Elizabeth?

(Side note: Betty White’s real first name is… Betty – she says that it isn’t “short” for anything)

5. [10] In 1995, Betty White received a star on the Hollywood Walk of Fame – and her star is right near the star of her late husband, Allen Ludden. There are many couples that both have stars on the Hollywood Walk of Fame. This led Betty to wonder – is there a difference in the age between the husband and wife when they get their Hollywood star? As a result, Betty took a random sample of heterosexual couples that both have stars on the Hollywood Walk of Fame and recorded the age at which they received their star, given below.

At the .05 level of significance, is there evidence that there is a difference in the ages when husbands and wives get their Hollywood Walk of Fame star?

6. [10] For 19 years, Betty was hostess of the Tournament of Roses Parade (which is every year before the Rose Bowl). Of all the parades on television that exist, which is the favorite? A random sample of people was taken, with the results summarized below:

At the .05 level of significance, is there an association between gender and favorite parade on television?

7. [7 – 3] Betty starred on a great number of game shows – and perhaps my favorite was Match Game. While Betty was a great player, did she do better with some contestants than others? Betty took a random sample of Match Game episodes and found that she matched the male contestants 264 out of 385 times and matched the female contestants 294 out of 377 times.

1. Construct a 95% confidence interval for the difference in the proportion of the time Betty would match male contestants and the proportion of the time Betty would match female contestants.

2. Based on your answer to (a), can we conclude that Betty matched one group of contestants better than the other?

8. [12] There is a Facebook group devoted to The Golden Girls. On a regular basis, the group poses the question: Which Golden Girl was your favorite? A recent random sample of members of the Facebook group answered the question, given in the table below.

At the .05 level of significance, is there evidence to show that the distribution of favorite Golden Girls character is not uniform? (meaning, not an equal distribution)

9. [3 – 5 – 3 – 2 – 2] In 2010, Betty White (at age 88!) hosted an episode of Saturday Night Live, becoming the oldest host the show has ever had. Most people know that she was the oldest. However, what about the second oldest? Do people have an idea how old the second oldest guest host was? A random sample of people was taken; these people were asked two questions: what is your age (x) and what do you believe is the age of the second oldest SNL host?

Note: the second oldest SNL guest host was Miskel Spillman at age 80 (in 1977) who won a contest and is the only non-celebrity to host the show.

1. Draw a scatterplot for this set of data

2. Find the linear correlation coefficient. Based on that value, is there evidence of a linear relationship between the variables? Explain.

3. Find the line of best fit.

4. Predict the value of y given the value of x = 40

5. Find the residual for x = 40.

10. [5] Suppose that it can be shown that there is evidence of the following: There is a strong association between Betty White being a star on a show and Professor Simpson watching that show religiously.

Claim: By having Betty White star on a television show will guarantee Professor Simpson watches the show religiously.

What is the issue with this claim?

11. [6] While on Hot In Cleveland, Betty White was part of 2 live episodes. Not surprisingly, this increased her stress level. What about other actors? Stress scores follow a normal distribution with a mean of 3 and a standard deviation of 1.15. If a sample of 25 actors are taken, what is the probability that their average stress score is above 3.1?