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Other things equal, a firm’s sustainable growth rate could increase as a result of:

A firm’s debt has a par value of $1,000,000.  The market value of this debt is $1,100,000. The coupon rate is 7% and the debt has 8 years left to maturity. Interest is paid annually. The tax rate is 40%. There are 100,000 shares of stock outstanding with a par value of $20 per share. The per share stock price is $25. What should be the approximate debt ratio for this firm?

Last month, Lloyd’s Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm’s WACC. The Fed’s action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project’s forecasted NPV? Note that a project’s projected NPV can be negative, in which case it should be rejected.  Old WACC: 10.00% New WACC: 8.00% Year 0     1   2   3   Cash flows -$1,000 $410 $410 $410

A firm has 54,000 shares of common stock outstanding with a book value of $8 per share and a market value of $13. There are 17,000 shares of preferred stock with a book value of $18 and a market value of $22. There is a $1,000,000 face value bond issue outstanding that is selling at 106% of par. What weight should be placed on the debt when computing the firm’s WACC?

What is the approximate market price of preferred stock that pays an $8.00 dividend and has a book value of $100. The required return is 8.9% and the tax rate is 35%?

Individual stocks are:

Which one of the following bonds would be likely to exhibit a greater degree of interest rate risk?

Part II: Short Problems begins here–Answer 5 of the following 9 questions @ 6 points each. Select yes if you understand the instructions, and continue the exam.

Match the following.A) aquifer B) pH C) dam D) levee E) Edwards aquifer F) Carrizo aquifer G) turbidity H) aqueduct I) water table J) Ogallala aquifer The largest aquifer in the United States, it supports a lot of the agriculture throughout the Great Plains region. 

A stock has a required return of 8%, the risk-free rate is 3.5%, and the market risk premium is 2.5%. a) What is the stock’s beta? b) If the market risk premium increased to 4%, what is the stock’s new required rate of return? Assume that the risk-free rate and the beta remain unchanged.