MBA 610 Exam 2 – Questions With Expert
Solutions
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Terms in this set (80)
You want a seat on the board of Shares necessary = 270,000/2 + 1 = 135,001 shares
directors of Red Cow, Inc. The Cost = 135,001($79) = $10,665,079
company has 270,000 shares of stock
outstanding and the stock sells for
$79 per share. There are currently 4
seats up for election. The company
uses straight voting. How much will it
cost you to guarantee that you will be
elected to the board?
You want a seat on the board of Shares necessary = {[1/(1 + 3)] × 270,000} + 1 = 67,501
directors of Four Keys, Inc. The shares
company has 270,000 shares of stock
outstanding and the stock sells for
$73 per share. There are currently 3
seats up for election. If the company
uses cumulative voting, how many
shares do you need to guarantee that
you will be elected to the board?
, A firm has debt of $5,000, equity of RWACC = [$16,000/($5,000 + 16,000)](.12) +
$16,000, a cost of debt of 8 percent, a [$5,000/($5,000 + 16,000)](.08)(1 − .21)
cost of equity of 12 percent, and a tax RWACC = .1065, or 10.65%
rate of 21 percent. What is the firm's
weighted average cost of capital?
A firm has an equity multiplier of 1.57, B/S = 1.57 − 1
an unlevered cost of equity of 14 B/S = .57
percent, a levered cost of equity of .156 = .14 + .57(1 −.21)(.14 − RB)
15.6 percent, and a tax rate of 21 RB = .1045, or 10.45%
percent. What is the cost of debt?
Alexandria's Dance Studio is currently VL = {[$338,000(1 − .22)]/.142} + .22($400,000)
an all-equity firm with earnings VL = $1,944,620
before interest and taxes of $338,000 VE = $1,944,620 − 400,000
and a cost of equity of 14.2 percent. VE = $1,544,620
Assume the tax rate is 22 percent. The
firm is considering adding $400,000
of debt with a coupon rate of 7
percent to its capital structure. The
debt will be sold at par value. What is
the levered value of the equity?
Your firm has a bond issue with a face Annual tax shield on debt = $250,000(.07)(.21) =
value of $250,000 outstanding. These $3,675
bonds have a coupon rate of 7
percent, pay interest semiannually,
and have a current market price
equal to 103 percent of face value.
What is the amount of the annual tax
shield on debt given a tax rate of 21
percent?
Solutions
Add to calendar
Play your way to mastery with fun games
Match Blocks Charms NEW
Terms in this set (80)
You want a seat on the board of Shares necessary = 270,000/2 + 1 = 135,001 shares
directors of Red Cow, Inc. The Cost = 135,001($79) = $10,665,079
company has 270,000 shares of stock
outstanding and the stock sells for
$79 per share. There are currently 4
seats up for election. The company
uses straight voting. How much will it
cost you to guarantee that you will be
elected to the board?
You want a seat on the board of Shares necessary = {[1/(1 + 3)] × 270,000} + 1 = 67,501
directors of Four Keys, Inc. The shares
company has 270,000 shares of stock
outstanding and the stock sells for
$73 per share. There are currently 3
seats up for election. If the company
uses cumulative voting, how many
shares do you need to guarantee that
you will be elected to the board?
, A firm has debt of $5,000, equity of RWACC = [$16,000/($5,000 + 16,000)](.12) +
$16,000, a cost of debt of 8 percent, a [$5,000/($5,000 + 16,000)](.08)(1 − .21)
cost of equity of 12 percent, and a tax RWACC = .1065, or 10.65%
rate of 21 percent. What is the firm's
weighted average cost of capital?
A firm has an equity multiplier of 1.57, B/S = 1.57 − 1
an unlevered cost of equity of 14 B/S = .57
percent, a levered cost of equity of .156 = .14 + .57(1 −.21)(.14 − RB)
15.6 percent, and a tax rate of 21 RB = .1045, or 10.45%
percent. What is the cost of debt?
Alexandria's Dance Studio is currently VL = {[$338,000(1 − .22)]/.142} + .22($400,000)
an all-equity firm with earnings VL = $1,944,620
before interest and taxes of $338,000 VE = $1,944,620 − 400,000
and a cost of equity of 14.2 percent. VE = $1,544,620
Assume the tax rate is 22 percent. The
firm is considering adding $400,000
of debt with a coupon rate of 7
percent to its capital structure. The
debt will be sold at par value. What is
the levered value of the equity?
Your firm has a bond issue with a face Annual tax shield on debt = $250,000(.07)(.21) =
value of $250,000 outstanding. These $3,675
bonds have a coupon rate of 7
percent, pay interest semiannually,
and have a current market price
equal to 103 percent of face value.
What is the amount of the annual tax
shield on debt given a tax rate of 21
percent?
