Instructions
Instructions | |
NAME: | |
To complete the homework assignments in the templates provided: | |
1. | The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases. |
2. | You will enter the required information into the shaded cells. |
3. | The cells are coded: |
a) T requires a text answer. Essay questions require references; use the textbook. | |
b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary. | |
c) F requires a number only. In some problems, a “Step 1” is added to help you solve the problem. | |
d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value). | |
4. | Name your assignment file as “LastnameFirstinitial-BUSN602-Week#”, and submit by midnight ET, Day 7. |
DQ17-1
Discussion Question 17-1 |
What is meant by capital budgeting? Briefly describe some characteristics of capital budgeting. |
Answer: |
T |
DQ17-26
Discussion Question 17-26 |
What is a way to keep managers accountable for their capital budgeting forecasts and estimates? |
Answer: |
T |
P17-1
Problem 17-1 | |
Find the NPV and PI of a project that costs $1,500 and returns $800 in Year 1 and $850 in Year 2. Assume the project’s cost of capital is 8 percent. | |
Answers: | |
Enter the answers in blue shaded cells | |
Step 1: | |
PV of cash inflows | C |
PV of cash outflows | F |
Step 2: | |
NPV | C |
PI | C |
P17-2
Problem 17-2 | |
Find the NPV and PI of an annuity that pays $500 per year for eight years and costs $2,500. Assume a discount rate of 6 percent. | |
Answers: | |
Enter the answers in blue shaded cells | |
Step 1: | |
PV of cash inflows | C |
PV of cash outflows | F |
Step 2: | |
NPV | C |
PI | C |
DQ18-2
Discussion Question 18-2 |
Explain why determining a firm’s optimum debt/equity mix is important. |
Answer: |
T |
DQ18-4
Discussion Question 18-4 |
How have the Fed’s policies since the 2007-2009 recession affected corporate financing decisions? |
Answer: |
T |
P18-8
Problem 18-8 | |||
The Nutrex Corporation wants to calculate its weighted average cost of capital. Its target capital structure weights are 40 percent long-term debt and 60 percent common equity. The before-tax cost of debt is estimated to be 10 percent and the company is in the 40 percent tax bracket. The current risk-free interest rate is 8 percent on Treasury bills. The expected return on the market is 13 percent and the firm’s stock beta is 1.8. | |||
a. What is Nutrex’s cost of debt? b. Estimate Nutrex’s expected return on common equity using the security market line. c. Calculate the after-tax weighted average cost of capital. | |||
Answers: | |||
Enter the answers in blue shaded cells | |||
Formula | Calculation | ||
a. | Cost of debt | T | C |
b. | Expected return on common equity | T | C |
c. | After-tax WACC | T | C |