Fin 410 Exam

FIN400 FINAL EXAM 1. You have a portfolio with a beta of 3.1. What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5? Ans – 3.31 2. PNB Industries has 20 million shares of common stock outstanding with a market price of $18.00 per share. The company also has outstanding preferred stock with a market value of 50 million, and $500,000 bonds outstanding, each with face value $1,000 and selling at 97% of par value. The cost of equity is 15%, the cost of preferred is 12% and the cost of debt is 8.50%. If PNB’s tax rate is 40%, what is the WACC? Ans – 9.47% 3. A 2 – year Treasury security currently earns 5.13%. Over the next 2 years, the real …show more content…

Calculate the bond’s default risk premium. Ans – 2.10% 21. Universal Forests current stock price is $154.00 and it is likely to pay a $5.23 dividend next year. Since analysts estimate Universal Forest will have a 13.0% growth rate what is the required return? Ans – 16.40% 22. Suppose that Hanna Nails, Inc capital structure features 45 percent equity, 55 percent debt, and that it’s before tax cost of debt is 5%, while its cost of equity is 9 percent. If the appropriate weighted average tax rate is 40 percent, What will be Hanna Nails’ WACC? Ans – 5.70% 23. Ivy has preferred stock selling for 98 percent of par that pays a 7 percent annual coupon. What would Ivy’s component cost of preferred stock ? Ans – 7.14% 24. What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4% for an investor in the 28% tax bracket? Ans – 5.56% 25. Which of the following is a poor justification for a merger? Ans – Increase the size of the firm 26. A financial manager has detrermined that the appropriate rate discount for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 3 percent and 8 percent, respectively. Ans – 22% 27. Jane Adams invests all her money in the stock