finc620 week 5 quiz

	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

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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?

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