Fin 516 Quiz 1

1. | Question ðÿ˜  (TCO C) Blease Inc. has a capital spending plan of $625,000, and it needs to keep up an objective capital structure of 60 percentâ debt and 40 percentâ equity. The organization figures a total compensation of $475,000. On the off chance that it follows the leftover profit strategy, what is its guage profit payout proportion? (a) 40. 61% (b) 42. 75% (c) 45. 00% (d) 47. 37% (e) 49. 74% | Student Answer:|  | (d) 47. 37 Equity required (Residual pay) = $625,000*40% = $250,000 Dividend paid = $475,000 †$250,000 = $225,000 Dividend payout proportion = 225000/475000 = 47. 37% |  | Instructor Explanation:| Answer is: dText: pp. 570-572 †Residual Dividends, Chapter 14 Capital financial plan $625,000 Equity proportion 40% Net pay (NI) $475,000 Dividends paid = NI †(Equity ratio)(Capital spending plan) $225,000 Dividend payout proportion = Dividends paid/NI 47. 37% | Points Received:| 10 of 10 | Comments:| | 2. | Question ðÿ˜  (TCO F) The accompan ying information applies to Saunders Corporation's convertible bonds: Maturity: 10 Stock cost: $30. 00 Par esteem: $1,000. 00 Conversion cost: $35. 00 Annual coupon: 5. 00% Straight-obligation yield: 8. 00% What is the bond's transformation esteem? (a) $698. 15 (b) $734. 89 (c) $773. 57 (d) $814. 29 e) $857. 14 | Student Answer:|  | (e) $857. 14 Conversion proportion = Par esteem/Conversion Price= 28. 5714 =1000/35 Current offer price= $30. 00 Therefore, change estimation of the bond= $857. 14 =28. 5714ãâ€"30 |  | Instructor Explanation:| Answer is: e Chapter 19: pp. 770-774 Conversion esteem = Conversion proportion x Market cost of stock = $857. 14 | Points Received:| 10 of 10 | Comments:| | 3. | Question ðÿ˜  (TCO B) SA †Your firm has obligation worth $350,000, with a yield of 12. 5 percent, and value worth $700,000. It is developing at aâ seven percent rate, and faces a 40 percent charge rate.A comparable firm with no obligation has a cost value of 17 percent. Unde r the MM augmentation with development, what is its expense of value? (a) 19. 25% (b) 21. 75% (c) 18. 0% (d) 17. 5% (e) 18. 4% | Student Answer:|  | | Instructor Explanation:| An is right. Educator Explanation: M and M Extension with Growth †Section 26. 4 (pp. 1011-1015) rsL = rsU + (rsU †rd)(D/S) 19. 25% = 17% + (17%-12. 5%)(350,000/700,000)| | Points Received:| 10 of 20 | Comments:| this is you messaged arrangement †4. (TCO B) SA †Your firm has obligation worth $350,000, with a yield of 12. 5 percent, and value worth $700,000.It is developing at a seven percent rate, and faces a 40 percent charge rate. A comparable firm with no obligation has a cost value of 17 percent. Under the MM expansion with development, what is its expense of value? My answer is: (d) 17. 5% rsL = rsU + (rsU †rd)(D/S) 17. 5% = 15% + (15%-10%)(200,000/400,000 I don't know where you got the 15% number for the rsU or the 200,000 for D or the 400,000 for S the figurings and equation ar e right however you utilized every single inaccurate info so I will give you 1/2 credit An is right. Educator Explanation: M and M Extension with Growth †Section 26. (pp. 1011-1015) rsL = rsU + (rsU †rd)(D/S) 19. 25% = 17% + (17%-12. 5%)(350,000/700,000) | 4. | Question ðÿ˜  (TCO B) Firm L has obligation with a market estimation of $200,000 and a yield of nine percent. The association's value has a market estimation of $300,000, its profit are developing at aâ five percentâ rate, and its expense rate is 40 percent. A comparative firm with no obligation has an expense of value of 12 percent. Under the MM augmentation with development, what might Firm L's absolute worth be in the event that it had no obligation? (a) $358,421 (b) $377,286 (c) $397,143 (d) $417,000 (e) $437,850 | Student Answer:|  | (c) $397,143 VTotal = VU + VTS, so VU = VTotal †VTS = D + S †VTS. Worth assessment cover = VTS = rdTD/(rsU †g) = 0. 09(0. 40)($200,000)/(0. 12 †0. 05) = $102,857 VU = $300,000 + $200,000 †$102,857 = $397,143 |  | Instructor Explanation:| Answer is: c Chapter 26, pp. 1011-1015 Debt: $200,000 Equity: $300,000 rd: 9% rsU : 12% T: 40% g: 5% Firm L has an all out estimation of $200,000 + $300,000 = $500,000. A comparative firm with no obligation ought to have a littler valu(e) Here is the estimation: VTotal = VU + VTS, so VU = VTotal †VTS = D + S †VTS. Worth assessment cover = VTS = rdTD/(rsU †g) = 0. 9(0. 40)($200,000)/(0. 12 †0. 05) = $102,857 VU = $300,000 + $200,000 †$102,857 = $397,143 | Points Received:| 20 of 20 | Comments:| | 5. | Question ðÿ˜  (TCO A) Which of the accompanying explanations is CORRECT? (an) An alternative's worth is dictated by its activity esteem, which is the market cost of the stock less its striking cost. In this way, a choice can't sell for more than its activity esteem. (b) As the stock’s cost rises, the time esteem segment of an alternative on a stock increments on the grounds that the contrast between the cost of the stock and the fixed strike cost increments. c) Issuing alternatives furnishes organizations with a minimal effort strategy for raising capital. (d) The market estimation of an alternative depends to a limited extent on the choice's a great opportunity to development and furthermore on the inconstancy of the basic stock's cost. (e) The potential misfortune on a choice declines as the choice sells at ever more elevated costs on the grounds that the net revenue gets greater. | Student Answer:|  | (c) Issuing alternatives furnishes organizations with a minimal effort technique for raising capital. |  | Instructor Explanation:| Answer is: d Chapter 8, pp. 306-310 | Points Received:| 0 of 20 | Comments:| Companies don't give Options †they are an exchanging vehicle of the trades †no capital from alternatives go to the firm | 6. | Question ðÿ˜  (TCO F) Suppose the December CBOT Treasury bond fates contract has a prov ided cost estimate of 80-07. What is the suggested yearly financing cost inborn in the fates contract? Accept this agreement depends on a multi year Treasury bond with semi-yearly premium installments. The assumed worth of the bond is $1000, and the semi-yearly coupon installments are $30. The yearly coupon rate on the securities is $60 per security (or 6%).The fates contract has 100 securities. (a) 6. 86% (b) 7. 22% (c) 7. 60% (d) 8. 00% (e) 8. 40% | Student Answer:|  | (d) 8% Quote: 80’07 0. 80 0. 07 N: 40 PV = (0. 80+0. 07/32) ? $1,000 = - $802. 1875 FV = $1,000 PMT = $30 I/YR = 4. 00% Annual rate: I/YR ? 2 = 8. 00% |  | Instructor Explanation:| Answer is: d Chapter 23, pp. 917-923 Answer Detail: Quote: 80-07 0. 80 0. 07 N: 40 PV = (0. 80+0. 07/32) ? $1,000 = - $802. 1875 FV = $1,000 PMT = $30 I/YR = 4. 00% Annual rate: I/YR ? 2 = 8. 00% | Points Received:| 20 of 20 | Comments:| |