davenport finc620 week 5 quiz

| August 14, 2017

·
uestion 1
2 out of 2 points

Brammer Corp.’s projected capital budget is
$1,000,000, its target capital structure is 60% debt and 40% equity, and its
forecasted net income is $550,000. If the company follows a residual dividend
policy, what total dividends, if any, will it pay out?

·
Question 2
2 out of 2 points

Which of the following statements is CORRECT?

·
Question 3
2 out of 2 points

Brooks Corp.’s projected capital budget is
$2,000,000, its target capital structure is 60% debt and 40% equity, and its
forecasted net income is $600,000. If the company follows a residual dividend
policy, what total dividends, if any, will it pay out?

·
Question 4
2 out of 2 points

Vu Enterprises expects to have the following data during the coming
year. What is Vu’s expected ROE?

Assets

$200,000

Interest rate

8%

D/A

65%

Tax rate

40%

EBIT

$
25,000

·
Question 5
2 out of 2 points

Senbet Ventures is considering starting a new
company to produce stereos. The sales price would be set at 1.5 times the
variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs
are estimated at $120,000. What sales volume would be required in order to
break even, i.e., to have an EBIT of zero for the stereo business?

·
Question 6
2 out of 2 points

Pate & Co. has a capital budget of
$3,000,000. The company wants to maintain a target capital structure that is
15% debt and 85% equity. The company forecasts that its net income this year
will be $3,500,000. If the company follows a residual dividend policy, what
will be its total dividend payment?

·
Question 7
2 out of 2 points

Reynolds Resorts is currently 100% equity
financed. The CFO is considering a recapitalization plan under which the firm
would issue long-term debt with a yield of 9% and use the proceeds to
repurchase common stock. The recapitalization would not change the company’s
total assets, nor would it affect the firm’s basic earning power, which is
currently 15%. The CFO believes that this recapitalization would reduce the
WACC and increase stock price. Which of the following would also be likely to
occur if the company goes ahead with the recapitalization plan?

·
Question 8
0 out of 2 points

Multi-Part 15-4:
The A. J. Croft Company (AJC) currently has
$200,000 market value (and book value) of perpetual debt outstanding carrying
a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are
$100,000, and it is a zero growth company. AJC’s current cost of equity is
8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock
outstanding selling at a price per share of $60.00.

Refer to Multi-Part 15-4. What is AJC’s current total market value and
weighted average cost of capital?

·
Question 9
2 out of 2 points

Which of the following statements is correct?

·
Question 10
2 out of 2 points

Firm M is a mature firm in a mature industry. Its
annual net income and net cash flows are both consistently high and stable.
However, M’s growth prospects are quite limited, so its capital budget is
small relative to its net income. Firm N is a relatively new firm in a new
and growing industry. Its markets and products have not stabilized, so its
annual operating income fluctuates considerably. However, N has substantial
growth opportunities, and its capital budget is expected to be large relative
to its net income for the foreseeable future. Which of the following
statements is correct?

·
Question 11
2 out of 2 points

Which of the following statements is CORRECT?

·
Question 12
2 out of 2 points

Which of the following statements is CORRECT?

·
Question 13
2 out of 2 points

Multi-Part 15-1:
Powell Plastics, Inc. (PP) currently has zero
debt. Its earnings before interest and taxes (EBIT) are $80,000, and it is a
zero growth company. PP’s current cost of equity is 10%, and its tax rate is
40%. The firm has 10,000 shares of common stock outstanding selling at a
price per share of $48.00.

Refer to Multi-Part 15-1. PP is considering moving to a capital structure
that is comprised of 30% debt and 70% equity, based on market values. The
debt would have an interest rate of 8%. The new funds would be used to
repurchase stock. It is estimated that the increase in risk resulting from
the added leverage would cause the required rate of return on equity to rise
to 12%. If this plan were carried out, what would be PP’s new value of
operations?

·
Question 14
2 out of 2 points

Which of the following statements is CORRECT?

·
Question 15
2 out of 2 points

DeLong Inc. has fixed operating costs of
$470,000, variable costs of $2.80 per unit produced, and its products sell
for $4.00 per unit. What is the company’s breakeven point, i.e., at what unit
sales volume would income equal costs?

Order your essay today and save 20% with the discount code: ESSAYHELP
Order your essay today and save 20% with the discount code: ESSAYHELPOrder Now