Fiance Homework

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Ch. 7        Exercise #11 ABC & D           

Kareem Construction Company has the following amounts of interest-bearing debt and common equity capital:

FINANCING SOURCE DOLLAR AMOUNT INTEREST RATE COST OF CAPITAL ----------------------------------------------------------------------------------------------------------------------------------- Short-term Loan $200,000 12% Long-term Loan $200,000 14% Equity Capital $600,000 22% -------------------------------------------------

Kareem Construction is in the 30% average tax bracket.

A. Calculate the after-tax weighted average cost of capital (WACC) for Kareem B. Determine the after-tax dollar cost of financial capital used by Kareem C. Kareem’s earnings before interest and taxes (EBIT) was $300,000. Calculate Kareem’s net operating profit after taxes (NOPAT) D. Calculate Kareem’s economic value added (EVA). Did the venture build or destroy value

Ch. 8      Question #9
Identify and briefly describe two basic types of transactions that are exempt from registration with the SEC.

Ch. 9 Question #4

What is meant by capitalization (or cap) rate in reference to calculating a terminal value? What other types of terminal values might be appropriate (i.e., other than smooth growth procedures)?

Ch. 9 Exercise #2 A-D

The TecOne Corporation is about to begin producing and selling its prototype product. Annual cash flows for the next five years are forecasted as:

Year Cashflow 1 -$50,000
2 -$20,000
3 $100,000
4 $400,000
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