Question 910ptsWhich of the following qualitatively describes how you would “unlever a stock” within your own portfolio?Borrow money to buy additional shares of stock on margin.Borrow money to invest...

Question 910ptsWhich of the following qualitatively describes how you would “unlever a stock” within your own portfolio?Borrow money to buy additional shares of stock on margin.Borrow money to invest in a fixed-income security.Sell off a portion of the shares you own and invest the proceeds in a different stock to diversify.Sell off a portion of the shares you own and invest the proceeds in a fixed-income security.Flag this QuestionQuestion 1010ptsSuppose you have a machine with a book value of $5,000. What are your after-tax cash flows from selling this machine if the relevant marginal tax rate is 35% and you sell the machine for $3,000?$1,950$2,300$3,000$3,700$4,300Flag this QuestionQuestion 1110ptsSuppose you have a machine with a book value of $5,000. What are your after-tax cash flows from selling this machine if the relevant marginal tax rate is 35% and you sell the machine for $5,000?$0$1,750$3,250$5,000$6,750Flag this QuestionQuestion 1210pts

Consider a machine with the following specifications:

• Cost = $10,000 upfront to purchase, then $2,000/yr operating expenses thereafter


• Useful life = 4 years, with annual depreciation expense of $2,500/yr


• Machine can be sold at the end of its useful life for $1,000

Suppose the relevant occ is 12% and the tax rate is 30%. What is the equivalent annual cash flow (EACF) associated with this machine?

-$11,529.414-$4,395.880-$4,325.000-$3,795.880-$2,495.880Flag this QuestionQuestion 1310ptsConsider a firm that relies on corn as a material input to its operations. The manager wants to offset the cost of his other hedging strategies by writing a put option with a strike price of 300 cents per bushel. Which of the following qualitatively describes his position:He must pay a premium upfront, which gives him the right to sell the underlying security for 300 cents per bushel.He must pay a premium upfront, which gives him the right to buy the underlying security for 300 cents per bushel.He will receive a premium upfront. Later, he may be obligated to sell the underlying security for 300 cents per bushel.He will receive a premium upfront. Later, he may be obligated to buy the underlying security for 300 cents per bushel.Flag this QuestionQuestion 1410ptsSuppose a risky investment, with a required rate of return of 15 percent, offers to pay $100 three years from today (at t=3). Suppose the riskless rate is 2 percent. What is the implied deduction for risk (i.e., based on the correspondingcertainty equivalent cash flowat t=3)?$5.768$30.224$30.695$34.248$130.000Flag this QuestionQuestion 1510ptsConsider a publicly traded firm whose book value of equity is $100,000, and book value of debt is $100,000. This firm currently has 50,000 shares of stock outstanding, priced at $15 per share, and 100 bonds outstanding, each selling at par value (where the face value is $1000 per bond). If the cost of equity for this firm is 10 percent, the cost of debt is 4 percent, and the tax rate is 35 percent, what is the WACC for this firm?6.300 percent7.000 percent9.129 percent9.294 percent12.600 percentFlag this QuestionQuestion 1610ptsConsider a firm that has a debt-to-equity ratio of 2.00. The firm’s WACC is currently 12 percent, its cost of debt is 6 percent, and the tax rate is 35%. What is this firm’s cost of equity?6.000 percent8.100 percent9.900 percent10.600 percent28.200 percentFlag this QuestionQuestion 1710ptsAssume we are in an otherwise perfect, frictionless world with corporate taxes. Firm X has a debt-to-equity ratio of 2.25, its cost of equity is 12%, and its cost of debt is 6%. The corporate tax rate is 35%. If the firm converts to a debt-to-equity ratio of 1.25, what will its new WACC be?2.974 percent5.149 percent6.796 percent7.500 percent9.667 percentFlag this QuestionQuestion 1810ptsYour initial calculation of the NPV of a five-year project is $100. However, the CEO points out that you have forgotten to incorporate information about additional credit lines that you have agreed to extend to customers. Specifically, if the project is taken, the level of yourAccounts Receivablewill increase today by $100. Assuming the relevant occ is 8 percent, what is the corrected NPV when this is taken into account?$0.000$68.058$131.942$200.000No correction needed (i.e., stays at $100)Flag this QuestionQuestion 1910ptsIn 2014, Firm X made $500 in sales with $1,200 in fixed assets. Suppose the firm had been operating at 75% of fixed asset capacity. If the firm can increase operating capacity to 85%, how much more in fixed assets would the firm need to achieve $650 in sales?$150.000$176.471$218.182$360.000No additional fixed assets required.Flag this Question

Please use the tables below for the questions that follow.

Balance Sheets for Years Ending 2015 and 2016
Assets				Liabilities + Shareholders’ Equity
	2015	2016			2015	2016
				Total Debt:
Current Assets	4,000	5,200		Current Liabilities	2,000	2,600
				Long-Term Debt	4,000	5,200
Fixed Assets	14,000	18,200		Total SHE:
				Common Stock + paid-in surplus	6,000	9,200
				Retained Earnings	6,000	6,400
TOTAL	$18,000	$23,400		TOTAL	$ 18,000	$ 23,400

2016 Income Statement

2016 Income Statement
Sales	2,000
Cost of Goods Sold	400
General / admin. expenses	200
Depreciation	200
Earnings before interest and taxes	1,200
Interest paid (10% of LTD)	520
Taxable Income	680
Taxes paid (30%)	204
Net Income	$ 476

Flag this QuestionQuestion 2010ptsRefer to the information in the tables above for this question. What was the cash flow to bondholders in2016?-$680$520$1,200$1,720Not enough informationFlag this QuestionQuestion 2110ptsRefer to the information in the tables above for this question. What was the dividend amount paid to shareholders in2016?None$76$238$400Not enough informationFlag this QuestionQuestion 2295pts

You run a coffee shop, where you currently sell 200 coffees per year at $4 each, and 100 pastries per year at $3 each. You also currently pay $200 per year to rent the building space, and you pay a barista $100 per year to serve the coffee and pastries.

You just paid a consultant $50 to assess ways in which you can increase revenue. Based on his advice, you are thinking of purchasing a sign spinner, currently priced at $125, to direct nearby foot traffic to your shop. You will also need to hire someone to operate the sign spinner, at an annual salary of $75 per year.

Based on market surveys, you expect that the sign spinner will enable you to sell 150 more coffees and 50 more pastries per year. The sign-spinning machine has a useful life of five years, and cannot be re-sold. Suppose you book the machine as an asset upon purchase, and declare an annual depreciation expense of $25 per year throughout its useful life. Your relevant marginal tax rate is 30%.

Assuming the relevant occ is 10%, what is the NPV of this investment (i.e., investing in the sign spinner)?There will be partial credit, where applicable. Round all interim work to at least 4 decimal places.