Homework Answers
Part A:
If we use Retained earnings for expansion, we miss their usage at some other Place.
Thus cost of retained earings if opportunity cost.
Part B:
Issue of new stock contains floating charges hence expensive than retained earnings.
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Question 5 10 pts In a capital budgeting project financed by retained earnings, the cost of...
What is the cost of retained earnings? Question 7 10 pts Cost of retained earnings. Suppose...
What is the cost of retained earnings?
Question 7 10 pts Cost of retained earnings. Suppose next year's dividend is $1.50. Current price of common stock is $29.41. Constant dividend growth rate is 5%. What is the cost of retained earnings? 10.10% 10.98% 10.36% 9.89%
Question 30 2p Capital budgeting involves O analyzing various alternatives of financing available to a company...
Question 30 2p Capital budgeting involves O analyzing various alternatives of financing available to a company deciding among various long-term investments O preparing the sales budget for the coming year O budgeting for yearly operational expenses Question 31 2 pts The benefit foregone by NOT choosing an alternative course of action is referred to as a(n): O opportunity cost. O sunk cost. incremental cost. O variable cost. Question 34 2 pts Which of the following describes a sunk cost? O...
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,4...
This is a sample question:
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,400,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 25% preferred stock, and 40% common stock. t is taxed at a rate of 27%. a. If the market price of the common stock is $31 and dividends are expected to...
Question 5 1 pts (5) Refer to the Capital Budgeting Narrative. Assume that the firm has...
Question 5 1 pts (5) Refer to the Capital Budgeting Narrative. Assume that the firm has a threshold of 2.6 years, Will the firm accept the project based on the PB method? Capital Budgeting Narrative: Doga Bank is considering a new project. The initial investment required is $67,000 and the cost of capital is 11%. Expected cash flows over the next four years are given below: Years Cash Flow (S) 7,000 22,000 25,000 80,000 The project will NOT be accepted...
Question 3 1 pts (3) Refer to the Capital Budgeting Narrative. What is the Discounted Payback...
Question 3 1 pts (3) Refer to the Capital Budgeting Narrative. What is the Discounted Payback Period of the project? Capital Budgeting Narrative: Doga Bank is considering a new project. The initial investment required is $46,000 and the cost of capital is 9%. Expected cash flows over the next four years are given below: Years Cash Flow (5) 6,000 30.000 14,000 70,000 3.1 years 2.7 years 2.3 years 2.2 years 3.0 years D Question 4 1 pts (4) Refer to...
Cost of capital Edna Recording Studios Inc. reported earnings available to common stock of $4,200,000 last...
Cost of capital Edna Recording Studios Inc. reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid a dividend of $1.26 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 40% debt, 10% preferred stock, and 50% common stock. It is taxed at a rate of 21%. If the market price of the common stock is $40 and dividends are expected to grow at a rate of 6%...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
4. The cost of retained earnings The cost of raising capital through retained earnings is the...
4. The cost of retained earnings The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (rRFrRF) is 3.86% while the market risk premium is 6.17%. The Burris Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Burris’s cost of equity is . The cost of equity using the bond yield plus...
Ch 13: Assignment - Capital Budgeting: Estimating Cash 3. Identifying incremental cash flows When firms make...
Ch 13: Assignment - Capital Budgeting: Estimating Cash 3. Identifying incremental cash flows When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's depreciation expense The project's fixed-asset expenditures The project's financing costs Changes in net working capital associated with the project Indirect cash flows often affect a...
Donaldson Mfg. is considering a capital budgeting project with a cost of capital of 10% and...
Donaldson Mfg. is considering a capital budgeting project with a cost of capital of 10% and the following expected cash flow pattern: Time 0 1 2 3 4 5 Cash flow -100 25 50 50 25 10 What is the profitabiity index of this project? 0.75 1.25 1.22 1.35
What is the cost of retained earnings?
Question 7 10 pts Cost of retained earnings. Suppose next year's dividend is $1.50. Current price of common stock is $29.41. Constant dividend growth rate is 5%. What is the cost of retained earnings? 10.10% 10.98% 10.36% 9.89%
Question 30 2p Capital budgeting involves O analyzing various alternatives of financing available to a company deciding among various long-term investments O preparing the sales budget for the coming year O budgeting for yearly operational expenses Question 31 2 pts The benefit foregone by NOT choosing an alternative course of action is referred to as a(n): O opportunity cost. O sunk cost. incremental cost. O variable cost. Question 34 2 pts Which of the following describes a sunk cost? O...
This is a sample question:
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,400,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 25% preferred stock, and 40% common stock. t is taxed at a rate of 27%. a. If the market price of the common stock is $31 and dividends are expected to...
Question 5 1 pts (5) Refer to the Capital Budgeting Narrative. Assume that the firm has a threshold of 2.6 years, Will the firm accept the project based on the PB method? Capital Budgeting Narrative: Doga Bank is considering a new project. The initial investment required is $67,000 and the cost of capital is 11%. Expected cash flows over the next four years are given below: Years Cash Flow (S) 7,000 22,000 25,000 80,000 The project will NOT be accepted...
Question 3 1 pts (3) Refer to the Capital Budgeting Narrative. What is the Discounted Payback Period of the project? Capital Budgeting Narrative: Doga Bank is considering a new project. The initial investment required is $46,000 and the cost of capital is 9%. Expected cash flows over the next four years are given below: Years Cash Flow (5) 6,000 30.000 14,000 70,000 3.1 years 2.7 years 2.3 years 2.2 years 3.0 years D Question 4 1 pts (4) Refer to...
When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's financing costs The project's depreciation expense Changes in net working capital associated with the project The project's fixed-asset expenditures O Indirect cash flows often affect a firm's capital budgeting decisions. However, some of these indirect cash flows are...
Ch 13: Assignment - Capital Budgeting: Estimating Cash 3. Identifying incremental cash flows When firms make capital budgeting decisions, they should concern themselves with incremental cash flows, not net income, when evaluating projects. To determine the incremental cash flows associated with a capital project, an analyst should include all of the following except: The project's depreciation expense The project's fixed-asset expenditures The project's financing costs Changes in net working capital associated with the project Indirect cash flows often affect a...
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