Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding.
1. Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%. Calculate the firm's WACC adjusted for taxes using the market information in the table. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) The Number of Securities Outstanding Selling price The Required Rate of Return Bonds 1,356 $1,120 11.86% Preferred Stocks 4,178 $85.95 15.72% Common Stocks 1,494 $98.88 12.87% 2. Find the net present value (NPV) for the following series of future cash flows, assuming the company’s cost of capital is 9.01 percent. The initial outlay is $409,401. Year 1: 151,156 Year 2: 165,184 Year 3: 179,472 Year 4: 161,654 Year 5: 134,058 Round the answer to two decimal places in percentage form. 3. Marathon Technologies, Inc. is using the modified internal rate of return (MIRR) when evaluating projects. The company Is able to reinvest cash flows received from the project at an annual rate of 9.38 percent. The initial outlay for the projects is $436,700. Find the MIRR for the company's project. The project will produce the following after tax cash inflows of Year 1: $178,800 Year 2: $243,300 Year 3: $198,300 Year 4: $292,100 4. Calculate the cost of new common equity financing of stock R using Gordon Model: Last Year Dividend: $2.10 Growth Rate of DIvidends: 1.6% Selling Price of Stock: $61.51 Floatation Costs: $3.61 Cost of Common Equity = 5. Golden Rod Corps preferred stock is selling for $32.82.The company pays $7.68 annual dividends on this preferred stock. Which rate of return does the investor expect to receive on this stock if the stock is purchased today? 6. Find the payback period for the following project Project x Initial outlay $18,700 Year 1 5720 Year 2 5350 Year 3 5160 Year 4 6610 7. Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 10.08 percent coupon rate and paid interest annually. It is now 10 years later. The current market rate of interest on the Bright Sun bonds is 12.83 percent. What is the current market price (intrinsic value) of the bonds? 8. Fresh Fruit, Inc. has a $1,000 par value bond that is currently selling for $977. It has an annual coupon rate of 8.36 percent, paid semiannually, and has 9-years remaining until maturity. What would the annual yield to maturity be on the bond if you purchased the bond today and held it until maturity? 9. Find the internal rate of return (IRR) for the following project. The project requires an initial outlay is $763,200. year 1 : 159,000 year 2: 125,800 year 3: 165,200 year 4: 234,200 year 5: 234,000 10. Aqua System Inc. expects to have $20,621,000 in credit sales during the coming year. Currently all checks are sent to the home office. A proposed lockbox system can eliminate 4 days of float, releasing funds which, when invested, will earn 13.52 percent per year. What annual savings can Aqua System expect if the system is implemented? Use a 365- day year. Round the answer to two decimal places 11. 27 years ago blue lake corp issued 30 year to maturity zero coupon bonds with a par value of $5000. The bond has current yield to maturity of 5.79% compounded annually. What is the current price of the bond? 12. John invested the following amounts in three stocks: Stock A $874,595 0.68 Stock B $638,811 0.94 Stock C $851,540 2.31 Calculate the beta portfolio. Round the answers to two decimal places. 13. A project has an initial outlay of $4,333. It has a single payoff at the end of year 10 of $9775. What is the profitability index (PI) of the project, if the company’s cost of capital is 5.35 percent? 14. General Mills has a $1000 par value, 23-year to maturity bond outstanding with an annual coupon rate of 10.95 percent per year, paid semi-annually. Market interest rates on similar bonds are 11.30 percent. Calculate the bond's price today. Round the answer to two decimal places. 18. Jack holds a portfolio with the following securities:
