71 . A publicly traded company has a beta of 1.2, a debt/equity ratio of 1.5, ROE of 8.1%, and a marginal tax rate of 40%. The unlevered beta for this company is closest to:
A) 1.071.
B) 0.632.
C) 0.832.
72 . A company has the following data associated with it:
§ A target capital structure of 10% preferred stock, 50% common equity and 40% debt.
§ Outstanding 20-year annual pay 6% coupon bonds selling for $894.
§ Common stock selling for $45 per share that is expected to grow at 8% and expected to pay a $2 dividend one year from today.
§ Their $100 par preferred stock currently sells for $90 and is earning 5%.
§ The company's tax rate is 40%.
Part 1)
What is the after tax cost of debt capital and after tax cost of preferred stock capital?
Debt Capital Preferred Stock Capital
A) 4.2% 5.6%
B) 4.2% 6.3%
C) 4.5% 5.6%
73 .Apple Industries, a firm with unlimited funds, is evaluating five projects. Projects A and B are independent and Projects C, D, and E are mutually exclusive. The projects are listed with their rate of return and NPV. Assume that the applicable discount rate is 10%.
Project Status Rate of Return Net Present Value
A Independent 14% $10,500
B Independent 12% $13,400
C Mutually Exclusive11% $16,000
D Mutually Exclusive15% $14,000
E Mutually Exclusive12% $11,500
Rank the projects the firm should select.
A) All projects should be selected.
B) Project A, Project B, and Project C.
C) Project A, Project B, and Project D.
74 .A firm is reviewing an investment opportunity that requires an initial cash outlay of $336,875 and promises to return the following irregular payments:
Year 1: $100,000
Year 2: $82,000
Year 3: $76,000
Year 4: $111,000
Year 5: $142,000
If the required rate of return for the firm is 8%, what is the net present value of the investment? (You’ll need to use your financial calculator.)
A) $64,582.
B) $99,860.
C) $86,133.
75 .The condition that occurs when a company disburses cash too quickly, stretching the company’s cash reserves, is best described as a:
A) drag on liquidity.
B) pull on liquidity.
C) liquidity premium.
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