Corp Fin Lunch Crunch planning, business, expected, required, renting

domani

Allen Corporation is planning to expand into the fast developing business of renting video movies. Allen has debt-to-equity ratio of 1, its pretax cost of debt is 15%, and its marginal tax rate is 40%. The Gardner Corporation is already in the video business, has a β of 1.5, debt-to-equity ratio of 0.75, and marginal tax rate of 25%. What beta should Allen use in evaluating this project? What is the required return on the project if the riskless rate is 10% and the expected return on the market is 20%?

Southampton Publishing Corporation has tax rate of 40%, debt-to-equity ratio of 40%, and has (leveraged) beta of 1.25. The riskless rate is 9% and the market return is 16%. Victoria Publishing Company is an all equity company and is in the same business. What is the required rate of return by the Victoria stockholders?

Dauphin Corporation has 15% cost of equity, 40% tax rate, and debt-to-equity ratio of 30%. Fayette Corporation has 35% tax rate and debt-to-equity ratio of 50%. Both Dauphin and Fayette are in the same business of selling automotive parts. If the riskless rate is 8% and the expected return on the market is 13%, find the cost of equity for Fayette.

Jeddah Restaurants has debt/equity ratio .5, and its leveraged beta is 1.6. Its tax rate is 30%, and its cost of equity is 16%. The risk-free rate is 6%. Masturah Restaurants has debt/equity ratio .4, and tax rate 35%. Find the cost of equity for Masturah.

Taurus Corporation has the following dividend policy: if the earnings after taxes are less than $1 million, the dividend payout ratio will be 35%, but if these earnings are over $1 million, the dividend payout ratio will be 45%. The EBIT of Taurus for next year is expected to be $6 million with a standard deviation of $4 million. Taurus has $20 million in long-term bonds with coupon of 9%, and 1.5 million shares of common stock. Calculate the probability that Taurus will give a dividend of more than $1 per share. The tax rate of Taurus is 30%.

Rogers Corporation stock sells at $27 per share and its dividend per share is $1.20. Rogers has price-earnings ratio 16. The company has $40 million worth of bonds, selling at par, with 8.5% coupon. The EBIT of Rogers is $12 million and its tax rate is 30%. Calculate: (a) the dividend payout ratio, (b) the total number of shares, (c) the total value of Rogers.

The expected EBIT of Krupa Co next year is $20 million with standard deviation of $4 million. The tax rate of Krupa is 30% and it has 10 million shares of common, stock. Krupa has to pay $8 million in interest and $5 million in a sinking fund. What is the probability that Krupa will be able to pay a dividend of $1 per share next year and still have some money left over as retained earnings?

Ithaca Company has 5 million shares of common stock selling at $50 each. It also has $100 million in long-term bonds with coupon 8%, selling at 90. The tax rate of Ithaca is 32%. Next year its EBIT is expected to be $20 million with a standard deviation of $8 million. The company plans to continue its $2 dividend per share. Ithaca also wants to add $5 million to its total retained earnings next year. Find the probability that it will be able to maintain its dividend.

soddy1979

allegro-cpa/cfa Wrote:
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> where did you get these questions?


Good question. Little point in posting these without citing a source or any kind of answer key.

waldziuchna

I'll post answers once I see attempts at solutions. Until then...