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. The simulation approach provides us with (Points : 1) a single value for the risk-adjusted net present value.an approximation of the systematic risk level.a probability distribution of the project’s net present value or internal rate of return.a graphic exposition of the year-by-year sequence of possible outcomes.3. Higgins Office Corp. plans to maintain its optimal capital structure of 40 percent debt, 10 percent preferred stock, and 50 percent common equity indefinitely. The required return on each component source of capital is as follows: debt–8 percent; preferred stock–12 percent; common equity–16 percent. Assuming a 40 percent marginal tax rate, what after-tax rate of return must Higgins Office Corp. earn on its investments if the value of the firm is to remain unchanged? (Points : 1) 12.40 percent12.00 percent11.12 percent10.64 percent4. A firm’s cost of capital is influenced by (Points : 1) the current ratio.par value of common stock.capital structure.net income.5. Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Zellars, Inc.’s required rate of return for these projects is 10%. The internal rate of return for Project B is (Points : 1) 29.74%.30.79%.35.27%.36.77%.8. Porky Pine Co. is issuing a $1,000 par value bond that pays 8.5% interest annually. Investors are expected to pay $1,100 for the 12-year bond. Porky will pay $50 per bond in flotation costs. What is the after-tax cost of new debt if the firm is in the 35% tax bracket? (Points : 1) 8.23%4.55%4.70%7.45%9. Clanton Company is financed 75 percent by equity and 25 percent by debt. If the firm expects to earn $30 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold? (Points : 1) $7.5 million$12.0 million$15.5 million$16.0 million10. A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of 3.5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.25 per share. The company’s marginal tax rate is 35%. Therefore, the cost of preferred stock is: (Points : 1) 18.87%.17.72%.14.26%.12.94%.
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