# 1. Given the following information on S & G Inc.’s capital structure, compute the company’s weighted average cost of capital. Type of Percent of Before-Tax Capital Capital Structure Component Cost Bonds 40% 7.5% Preferred Stock 5% 11% Common Stock (Internal Only) 55% 15% The company’s marginal tax rate is 40%. (Points : 1) 13.3% 7.1% 10.6% 10% 2. Asian Trading Company paid a dividend yesterday of \$5 per share (D0 = \$4). The dividend is expected to grow at a constant rate of 8% per year. The price of Asian Trading Company’s stock today is \$29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal \$2.50 per share. Asian Trading Company’s marginal tax rate is 35%. Based on the above information, the cost of retained earnings is (Points : 1) 28.38%. 24.12%. 26.62%. 31.40%. 3. Five Rivers Casino is undergoing a major expansion. The expansion will be financed by issuing new 15-year, \$1,000 par, 9% annual coupon bonds. The market price of the bonds is \$1,070 each. Gamblers flotation expense on the new bonds will be \$50 per bond. Gamblers marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds? (Points : 1) 8.76% 8.12% 7.49% 10.25% 4. A new machine can be purchased for \$1,200,000. It will cost \$35,000 to ship and \$15,000 to modify the machine. A \$12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for \$180,000. The firm will borrow \$750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate \$350,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1) \$2,180,000 \$1,780,000 \$1,442,000 \$1,430,000 5. Zinc, Inc. is considering the acquisition of a new processing line. The processor can be purchased for \$4,550,000. It will cost \$65,000 to ship and \$190,500 to install the processor. A recently completed feasibility study that was performed at a cost of \$45,000 indicated that the processor would produce a positive NPV. Studies have shown that employee-training expenses will be \$150,000. What is the total investment in the processing line for capital budgeting purposes? (Points : 1) \$4,550,000 \$4,700,000 \$4,955,500 \$5,000,500 6. Porky Pine Co. is issuing a \$1,000 par value bond that pays 8.5% interest annually. Investors are expected to pay \$1,100 for the 12-year bond. Porky will pay \$50 per bond in flotation costs. What is the after-tax cost of new debt if the firm is in the 35% tax bracket? (Points : 1) 8.23% 4.55% 4.70% 7.45% 7. Nickel Industries is considering the purchase of a new machine that will cost \$178,000, plus an additional \$12,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated using the straight-line method. The machine is expected to generate new sales of \$85,000 per year and is expected to increase operating costs by \$10,000 annually. Nickel’s income tax rate is 40%. What is the projected incremental cash flow of the machine for year 1? (Points : 1) \$54,800 \$60,200 \$66,350 \$68,200 8. Clanton Company is financed 75 percent by equity and 25 percent by debt. If the firm expects to earn \$30 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold? (Points : 1) \$7.5 million \$12.0 million \$15.5 million \$16.0 million 9. A project for Jevon and Aaron, Inc. results in additional accounts receivable of \$400,000, additional inventory of \$180,000, and additional accounts payable of \$70,000. What is the additional investment in net working capital? (Points : 1) \$580,000 \$510,000 \$270,000 \$150,000 10. Kelly Corporation will issue new common stock to finance an expansion. The existing common stock just paid a \$1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for \$45, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new common stock be for Kelly Corp.? (Points : 1) 11.33% 11.51% 11.60% 11.79% 12.53

1. Given the following information on S & G Inc.’s capital structure, compute the company’s weighted average cost of capital.

Type of Percent of Before-Tax
Capital Capital Structure Component Cost

Bonds 40% 7.5%
Preferred Stock 5% 11%
Common Stock (Internal Only) 55% 15%

The company’s marginal tax rate is 40%. (Points : 1)
13.3%
7.1%
10.6%
10%

2. Asian Trading Company paid a dividend yesterday of \$5 per share (D0 = \$4). The dividend is expected to grow at a constant rate of 8% per year. The price of Asian Trading Company’s stock today is \$29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal \$2.50 per share. Asian Trading Company’s marginal tax rate is 35%. Based on the above information, the cost of retained earnings is (Points : 1)
28.38%.
24.12%.
26.62%.
31.40%.

3. Five Rivers Casino is undergoing a major expansion. The expansion will be financed by issuing new 15-year, \$1,000 par, 9% annual coupon bonds. The market price of the bonds is \$1,070 each. Gamblers flotation expense on the new bonds will be \$50 per bond. Gamblers marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds? (Points : 1)
8.76%
8.12%
7.49%
10.25%

4. A new machine can be purchased for \$1,200,000. It will cost \$35,000 to ship and \$15,000 to modify the machine. A \$12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for \$180,000. The firm will borrow \$750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate \$350,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1)
\$2,180,000
\$1,780,000
\$1,442,000
\$1,430,000

5. Zinc, Inc. is considering the acquisition of a new processing line. The processor can be purchased for \$4,550,000. It will cost \$65,000 to ship and \$190,500 to install the processor. A recently completed feasibility study that was performed at a cost of \$45,000 indicated that the processor would produce a positive NPV. Studies have shown that employee-training expenses will be \$150,000. What is the total investment in the processing line for capital budgeting purposes? (Points : 1)
\$4,550,000
\$4,700,000
\$4,955,500
\$5,000,500

6. Porky Pine Co. is issuing a \$1,000 par value bond that pays 8.5% interest annually. Investors are expected to pay \$1,100 for the 12-year bond. Porky will pay \$50 per bond in flotation costs. What is the after-tax cost of new debt if the firm is in the 35% tax bracket? (Points : 1)
8.23%
4.55%
4.70%
7.45%

7. Nickel Industries is considering the purchase of a new machine that will cost \$178,000, plus an additional \$12,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated using the straight-line method. The machine is expected to generate new sales of \$85,000 per year and is expected to increase operating costs by \$10,000 annually. Nickel’s income tax rate is 40%. What is the projected incremental cash flow of the machine for year 1? (Points : 1)
\$54,800
\$60,200
\$66,350
\$68,200

8. Clanton Company is financed 75 percent by equity and 25 percent by debt. If the firm expects to earn \$30 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold? (Points : 1)
\$7.5 million
\$12.0 million
\$15.5 million
\$16.0 million

9. A project for Jevon and Aaron, Inc. results in additional accounts receivable of \$400,000, additional inventory of \$180,000, and additional accounts payable of \$70,000. What is the additional investment in net working capital? (Points : 1)
\$580,000
\$510,000
\$270,000
\$150,000

10. Kelly Corporation will issue new common stock to finance an expansion. The existing common stock just paid a \$1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for \$45, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new common stock be for Kelly Corp.? (Points : 1)
11.33%
11.51%
11.60%
11.79%
12.53