The table below provides some financial information of NKFUST Co.:
$ in millions |
|
Sales |
$2,311 |
Net Income |
$363 |
Earnings before interests and Taxes |
$691 |
Total Assets |
$3,588 |
Total Debt |
$997 |
Interests Paid |
$141 |
Depreciation |
$276 |
Shares Outstanding |
33 |
Dividend |
$121 |
Taxes Paid |
$187 |
(1)What is the equity multiplier?
(2)What is the EPS (earnings per share)?
(3)What is the operating cash flow?
(4)What is the sustainable growth rate?
(5)What is the internal growth rate?
Two proposed overseas expansions have the following cash flows:
Year |
Expansion (A) |
Expansion (B) |
0 |
$30,000 |
-$5,000 |
1 |
15,000 |
2,800 |
2 |
15,000 |
2,800 |
3 |
15,000 |
2,800 |
The two overseas expansion projects are mutually exclusive. The required rate of return is 8%. If the profitability index decision rule is applied, which project should the firm accept?
Suppose a company issues a bond with 3 years to maturity. The par value of this bond is $1,000. This bond has a coupon rate of 8% and makes annual payments. Similar bonds have a yield to maturity of 8%. Suppose a year has gone by, the interest rate in the market has risen to 10%. What is the price change in the price of this bond?
Suppose you observe the following situation:
Security |
Beat |
Expected Return |
A |
1.8 |
22.0% |
B |
1.6 |
20.44% |
What would the risk-free rate have to be if they are correctly priced?
Suppose the last dividend of NKFUST Co. was $1.2 per share, and the dividend is expected to grow at 8% indefinitely. The stock currently sells for $45 per share. NKFUST has a target debt-equity ratio of 50%. Its cost of debt is 9% before taxes. The tax rate is 35%. NKFUST is seeking $30 million for a new project. The necessary funds will have to be raised externally. NKFUST’s flotation costs for selling debt and equity are 2% and 16%, respectively.
(1)What is the company’s cost of equity capital?
(2)What is the weighted average cost of capital?
(3)If flotation costs are considered, what is the true cost of the new project?
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