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    ACF 103 - Fundamentals of Finance Tutorial 9 - Questions

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    Riri Fahrani
    This document contains sample questions from Chapter 15 of an finance textbook. The questions calculate weighted average cost of capital based on capital structure and required rates of return for different financing sources. They also evaluate capital budgeting projects using weighted average cost of capital. The document provides the questions along with references to the textbook for additional problems and homework assignments.

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    ACF 103 - Fundamentals of Finance Tutorial 9 - Questions

    Uploaded by

    Riri Fahrani
    30 views2 pages
    This document contains sample questions from Chapter 15 of an finance textbook. The questions calculate weighted average cost of capital based on capital structure and required rates of return for different financing sources. They also evaluate capital budgeting projects using weighted average cost of capital. The document provides the questions along with references to the textbook for additional problems and homework assignments.

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    ACF-103-Tutorial-9-Qns-2015

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    This document contains sample questions from Chapter 15 of an finance textbook. The questions calculate weighted average cost of capital based on capital structure and required rates of return for different financing sources. They also evaluate capital budgeting projects using weighted average cost of capital. The document provides the questions along with references to the textbook for additional problems and homework assignments.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    30 views2 pages

    ACF 103 - Fundamentals of Finance Tutorial 9 - Questions

    Uploaded by

    Riri Fahrani
    This document contains sample questions from Chapter 15 of an finance textbook. The questions calculate weighted average cost of capital based on capital structure and required rates of return for different financing sources. They also evaluate capital budgeting projects using weighted average cost of capital. The document provides the questions along with references to the textbook for additional problems and homework assignments.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
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    ACF 103 – Fundamentals of Finance

    Tutorial 9 - Questions
    Chapter 15
    1. The capital structure of Golden Gate Windsurfing, Inc. (given in terms of both
    book value and market value) is as follows:

    BOOK VALUE MARKET VALUE


    Bonds $15,000,000 $13,000,000
    Preferred stock 2,000,000 2,500,000
    Common stock equity9,000,000 18,500,000
    Retained earnings 4,000,000
    TOTALS $30,000,000 $34,000,000

    In addition: 1) its bonds currently provide a yield to maturity of 10%;


    preferred stock is yielding 9%; common stock is yielding 13%; 2) its marginal
    tax rate is 40%; and 3) its capital structure is considered optimal. The firm's
    weighted average cost of capital is closest to ________.
    A. 11.6%
    B. 11.2%
    C. 10.0%
    D. 9.2%

    2. The beta coefficient for ZZZ, Inc. is 1.0. If the risk-free rate is 8% and the
    required return on stocks in general is 16%, the required return for ZZZ is
    closest to ________.
    A. 10%
    B. 11%
    C. 12%
    D. 16%

    3. The required rate of return on the bonds of the EAP Corporation is 12%. The
    firm's beta coefficient is 1.2, the risk-free rate is 8%, and the required rate of
    return on stocks in general is 14%. If the firm's marginal tax rate is 40%, and it
    will be financing projects with a 50-50 debt to equity mix, find its weighted
    average cost of capital.

    4. Bay City Enterprises is considering the purchase of equipment costing


    $800,000, which promises to generate after-tax cash flows of $150,000
    annually for the next 10 years. The firm has a weighted average cost of capital
    of 12%. For this project, the financial manager plans to provide $200,000 from
    a new bond issue and $300,000 from a new stock issue. The balance of the
    financing would come from retaining earnings. The after-tax flotation costs on
    the debt issue will be 3% of the amount raised, while the common stock issue
    will carry flotation costs of 10%. Should the firm purchase the new piece of
    equipment?

    5. Text book Ch 15, problem # 1 (p.412). This problem is asking you to develop
    the general algebraic formula for calculating the weighted average cost of
    capital.

    ACF 103 HAUT 2015 Tutorial 9 1


    6. Text book Ch 15, problem # 2 (p.412)

    Homework problem
    7. Text book Ch 15, problem # 3 (p.412)

    8. Text book Ch 15, problem # 4 (p.412) (Hint: The answer lies between 12%
    and 14%)

    ACF 103 HAUT 2015 Tutorial 9 2

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