Study Guides (238,105)
Finance (313)
FIN 401 (71)
Final

fin 401 crib sheet.docx

3 Pages
440 Views

School
Ryerson University
Department
Finance
Course
FIN 401
Professor
Scott Anderson
Semester
Fall

Description
CF0 = -12,000 CF1=3000 CF2=4800 years and pays an annual coupon of WACC = weRE + wdRD(1 – Tc) CF3=1700 CF4=1700 CF5=6000 8%. The corporate tax rate is 40%. I = 7% Compute NPV = \$1,958.79 What is the after-tax cost of debt for = (300/727.5)(20) + Solution: N = 5, I = 10% x (1 – 0.4) = (427.5/727.5)(10)(1-0.4) = Loonie Bank? 6%, PMT = 1.5M x (1 – 0.4) = 900,000 N=30, PV = -1,100, FV = 1,000, 11.77% PMT = 80, compute I/Y = 7.1796% Solution: NAL = Cost - PV(ATLP) – After tax cost of debt = 7.1796% x PV(Salvage) – PV(CCATS) (1 – 0.4) = 4.31% Cost of project = Amount of equity Cost = 6,000,000 to be raised = Project cost/(1 – When evaluating two mutually- flotation cost) = 950,000/(1 – 0.05) PV(ATLP) = 4,018,595 exclusive projects each having non- conventional cash flows, what is the = \$1,000,000 PV(Salvage) = 200,000/1.06^5 = most appropriate criterion to use in PV(CFs) = PVA(200,000; 10 years, 149,452 deciding which project to accept, if PV(CCATS) = any? \NPV 15%) = \$1,003,754 .NPV = PV(CFs) – (6m)(0.35)(0.4)/(0.35+0.06) x 1.03/1.06 Cost = \$1,003,754 – 1,000,000 = – (200,000)(0.35)(0.4)/(0.35+0.06) x Which of the following is NOT an alternative for paying a \$3,754 1/(1.06)^5 = 1,990,796 – 51,032 = dividend? 1,939,764 25. Which of the following components of A) Selecting additional capital Tom & Jones (T&J) has earnings the NAL formula would be affected? budgeting projects B) Repurchasing shares before interest and taxes of I. The present value of the lease \$1,549,000. Both the book and the payments C) Acquiring other companies market value of debt is \$3,065,000. D) Issuing shares The unlevered cost of equity is II. The present value of CCATS E) All of the above are 15.5% while the pre-tax cost of debt III. The present value of the salvage alternatives for paying a is 8.5%. The tax rate is 35%. What value A financial lease increases the dividend. is the value of the equity in the PV = \$15, N = 2, I = 20%, compute levered firm? total debt of a firm. PMT = \$9.82 VU = [\$1,549,000(1 - .35)] / .155 = Suppose that an investor in PVMT At date 1, you want 200 x 9.82 = \$6,495,806 wanted to smooth out these \$1,964. VL = \$6,459,806 + (.35 x dividends and would like to \$3,065,000) = \$7,568,556 generate equal dividends in each At date 1, you will receive 200 x period. How large would each 1.20 = \$240. VE = VL - VD = \$7,568,556 - You need \$1,964 – 240 = \$1,724 \$3,065,000 = \$4,503,556 dividend be in this case? Price at date 1 = 20.16/1.2 = The proposition that a firm borrows Solution: N = 2, I = 12%, PV = - \$16.80 28.38, compute PMT = \$16.7924 up to the point where the marginal To get the additional \$1,724, you benefit of the interest tax shield Solution: The investor wants equal will have to sell 1724/16.80 = payments each year of \$16.7924 102.62 shares. derived from increased debt is just per share (see answer to previous You own 100 shares of The Quilt equal to the marginal expense of Shoppe. If the firm does go through question), for a total of \$839.62 on the capital restructuring, and you the resulting increase in financial the 50 shares. The investor receives distress costs is called the: a. static prefer the cash flows from the theory of capital structure. \$250 (50 shares * \$5 dividend) at current operation, what should you the end of the first year, leaving a do? According to M&M Proposition II You will want to achieve a 10/90 under no corporate taxes, the shortfall of \$589.62. P1 = 30/1.12 = d/e ratio, and that will require you to \$26.7857 WACC of the firm is unchanged by sell 10% of your 100 shares (i.e., 10 changing capital structure, so it \$/\$26.7857 = 22.01 shares shares) and invest the money in a A lease is considered to be a capital should remain at 18%. lease if which of the following criteria bond. According to Proposition I under hold: What is Hulk’s cost of equity corporate taxes, the value of the capital? firm will increase by the amount of I. The lease term is for 75% or more of RE = RF + BETA(MRP) = 6 + the debt tax shield. The debt tax the life of the asset. II. The lessee can purchase asset at (1.5)(7) = 16.5% shield would add (\$4m)(0.4) = below market price. Value of equity = 15,000,000 x \$1.6m to the value of the firm. III. The present value of lease payments is more than 90% of the fair market \$20 = \$300m Value of firm = VU + DTc = EBIT(1 – value at the start Value of debt = 0.95 x 450m = Tc)/RU + DTc = 9m(0.6)/0.18 + The long-term debt of Loonie Bank is currently selling for 110% of its 427.5m Value of firm = 300m + 4m(0.4) = \$31.6m
More Less

Related notes for FIN 401

OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Just a few more details

So we can recommend you notes for your school.

Get notes from the top students in your class.

Request Course
Submit