Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $15.368 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 5%. BEA is considering increasing its debt level to a capital structure with 35% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 8%. BEA has a beta of 1.0.

1. What is BEA's unlevered beta? Use market value D/S (which is the same as w_d/w_s) when unlevering. Round your answer to two decimal places.
   
   
2. What are BEA's new beta and cost of equity if it has 35% debt? Do not round intermediate calculations. Round your answers to two decimal places.

   Beta
   Cost of equity	%

   
   
3. What are BEA’s WACC and total value of the firm with 35% debt? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
   What is the total value of the firm with 35% debt? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.
   $ million

Sunrise, Inc., has no debt outstanding and a total market value of $320,000. Earnings before interest and taxes, EBIT, are projected to be $47,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 19 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $165,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession.

1) It is known that 10% of the calculators shipped from a particular factory are defective. What is the probability that exactly three of five chosen calculators are defective?

A) 0.00729

B) 0.0081

C) 0.081

D) 0.03

2)For a particular clothing store, a marketing firm finds that 16% of $10-off coupons delivered by mail are redeemed. Suppose six customers are randomly selected and are mailed $10-off coupons. What is the expected number of coupons that will be redeemed?

A) 0.81

B) 0.96

C) 3.42

D) 5.04

3)

The GPA of accounting students in a university is known to be normally distributed. A random sample of 20 accounting students results in a mean of 2.92 and a standard deviation of 0.16. Construct the 95% confidence interval for the mean GPA of all accounting students at this university.

A) 2.92 ± 1.729(0.16/ )

B) 2.92 ± 1.96(0.16/ )

C) 2.92 ± 2.086(0.16/ )

D) 2.92 ± 2.093(0.16/ )

4)

The probability that a normal random variable is less than its mean is ________.

A) 0.0

B) 0.5

C) 1.0

D) Cannot be determined

5)

A company that produces computers recently tested the battery in its latest laptop in six separate trials. The battery lasted 8.23,7.89,8.14,8.25,8.30, and 7.95 hours before burning out in each of the tests. Assuming the battery duration is normally distributed, construct a 95% confidence interval for the mean battery life in the new model.

A) [7.9490, 8.3044]

B) [7.9575, 8.2959]

C) [7.9873, 8.2661]

D) [7.9912, 8.2622]

Sunrise, Inc., has no debt outstanding and a total market value of $320,000. Earnings before interest and taxes, EBIT, are projected to be $47,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 19 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $165,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Assume the firm has a tax rate of 25 percent. c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-4. Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession.

Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: Percent Financed with Debt, 0% — 20 8.0% 30 8.5 40 10.0 50 12.0

If the company were to recapitalize, then debt would be issued and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free rate is 6%, and the market risk premium is 6%.

a. Using the free cash flow valuation model, show the only avenues by which capital structure can affect value.

b. What is business risk? What factors influence a firm’s business risk? What is operating leverage, and how does it affect a firm’s business risk? Show the operating break-even point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10.

Please provide a minimum 250 word explanation.

Iconic memory is a type of memory that holds visual information for about half a second (0.5 seconds). To demonstrate this type of memory, participants were shown three rows of four letters for 50 milliseconds. They were then asked to recall as many letters as possible, with a 0-, 0.5-, or 1.0-second delay before responding. Researchers hypothesized that longer delays would result in poorer recall. The number of letters correctly recalled is given in the table.

(a) Complete the F-table. (Round your values for MS and F to two decimal places.)

(b) Compute Tukey's HSD post hoc test and interpret the results. (Assume alpha equal to 0.05. Round your answer to two decimal places.)

The critical value is _____ for each pairwise comparison.

Which of the comparisons had significant differences? (Select all that apply.)

a) The null hypothesis of no difference should be retained because none of the pairwise comparisons demonstrate a significant difference.

b) Recall following a half second delay was significantly different from recall following a one second delay.

c) Recall following no delay was significantly different from recall following a half second delay.

d) Recall following no delay was significantly different from recall following a one second delay.

The company is considering the introduction of a new product that is expected to reach sales of $10 million in its first full year and $13 million of sales in the second and third years. Thereafter, annual sales are expected to decline to two-thirds of peak annual sales in the fourth year and one-third of peak sales in the fifth year. No more sales are expected after the fifth year. The CGS is about 60% of the sales revenues in each year. The GS&A expenses are about 23.5% of the sales revenue. Tax on profits is to be paid at a 40% rate. A capital investment of $0.5 million is needed to acquire production equipment. No salvage value is expected at the end of its five-year useful life. This investment is to be fully depreciated on a straight-line basis over five years. In addition, working capital is needed to support the expected sales in an amount equal to 27% of the sales revenue. This working capital investment must be made at the beginning of each year to build up the needed inventory and implement the planned sales program. Furthermore, during the first year of sales activity, a one-time product introductory expense of $200,000 is incurred. Approximately $1.0 million has already been spent promoting and test marketing the new product.

a. Formulate a multiyear income statement to estimate the cash flows throughout its five-year life cycle.

b. Assuming a 20% discount rate, what is the new product’s NPV?

c. Should the company introduce the new product?

Common-Sized Income Statement

Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill's data are expressed in dollars. The electronics industry averages are expressed in percentages.

a. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average.

You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks:

Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 5%, and you believe the following probability distribution for future market returns is realistic:

1. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.)
   
   1. r_i = 3.8% + (9.2%)b_i
   2. r_i = 3.8% + (7.7%)b_i
   3. r_i = 5.0% + (9.2%)b_i
   4. r_i = 8.5% + (11.0%)b_i
   5. r_i = 5.0% + (7.7%)b_i
   
   -Select ONE
   
2. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places.
     %
3. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 14%, and its estimated beta is 1.4. Should Kish invest in the new company?
   The new stock -Select-should notshouldItem 3 be purchased.
   
   At what expected rate of return should Kish be indifferent to purchasing the stock? Round your answer to two decimal places.
     %

Use the following to answer questions 14-19:

A design engineer wants to construct a sample mean chart and a range chart for controlling the diameter for a component used in surgeries. The following table contains measurements (in millimeters) of the diameter for a component. Four samples of five units each were taken at random two-hour intervals.

14. What is the sample mean for Sample 1?

a. 8.8

b. 10.1

c. 11

d. 8.0

e. 9.2

15.

What is the sample range for Sample 1?

a. 0

b. 1

c. 3

d. 4

e. 2

16. What is the estimate of the process mean for whenever it is in control?

a. 9.30

b. 8.85

c. 10.60

d. 10.00

e. 8.00

17. What is the estimate of the sample average range based upon this limited sample?

a. 1.1

b. 0.0

c. 1.0

d. 2.0

e. 1.5

18. What are the X-bar chart upper and lower control limits?

a. 10.01 and 7.15

b. 9.37 and 8.03

c. 11.87 and 5.83

d. 9.94 and 6.77

e. 9.72 and 7.98

19. What are the R chart upper and lower control limits?

a. 3.165 and 0

b. 4.225 and 0

c. 4.565 and 0

d. 3.855 and 0.042

e. 3.520 and 0