ABC company has a cost of equity of 20 percent, this firm is 100 percent equity.

ABC
want to go for expansion and the project will be funded by new equity of 100$ million.
Flotation cost will be 10 percent of the amount issues. What will be the cost of
expansion?

Suppose the debt equity structure is 60 percent equity and 40 percent debt. Flotation
cost is 10 percent for equity and 5 percent for debt. Then calculate the amount
needed for expansion?

The Upper Tier has a current debt-equity ratio of .52 and a target debt-equity
ratio of .45. The cost of floating equity is 9.5 percent and the flotation cost of
debt is 6.6 percent. What should the firm use as their weighted average flotation
cost? 

Jack's Construction Co. has 80,000 bonds outstanding that are selling at par value of
$1000. Bonds with similar characteristics are yielding 8.5%. The company also has 4
million shares of common stock outstanding. The stock has a beta of 1.1 and sells for
$40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%.
Jack's tax rate is 35%. What is Jack's weighted average cost of capital? 
Peter's Audio Shop has a cost of debt of 7%, a cost of equity of 11%, and a cost of
preferred stock of 8%. The firm has 104,000 shares of common stock outstanding at a
market price of $20 a share. There are 40,000 shares of preferred stock outstanding at
a market price of $34 a share. The bond issue has a total face value of $500,000 and
sells at 102% of face value. The tax rate is 34%. What is the weighted average cost of
capital for Peter's Audio Shop? 

Phil's Carvings, Inc. wants to have a weighted average cost of capital of 9%. The firm
has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio
is needed for the firm to achieve its targeted weighted average cost of capital? 

Daniel's Sound Systems has 210,000 shares of common stock outstanding at a market
price of $36 a share. Last month, Daniel's paid an annual dividend in the amount of
$1.593 per share. The dividend growth rate is 4%. Daniel's also has 6,000 bonds
outstanding with a face value of $1,000 per bond. The bonds carry a 7% coupon, pay
interest annually, and mature in 4.89 years. The bonds are selling at 99% of face value.
The company's tax rate is 34%. What is Daniel's weighted average cost of capital? 

PV=990
FV=1000
PMT= 1000*7%= 70
Time = 4.89

The Consolidated Transfer Co. is an all-equity financed firm. The beta is .75, the
market risk premium is 8% and the risk-free rate is 4%. What is the expected return of
Consolidated? 

Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if
the firm's equity has a beta of 1.2, the risk-free rate of return is 2%, the expected return
on the market is 9%, and the return to the company's debt is 7%? 

The cost of equity for Ryan Corporation is 8.4%. If the expected return on the market is
10% and the risk-free rate is 5%, then the equity beta is ___. 

Suppose that the Simmons Corporation's common stock has a beta of 1.6. If the risk-
free rate is 5% and the market risk premium is 4%, the expected return on Simmons'
common stock is: 
Suppose the Barges Corporation's common stock has an expected return of 12%.
Assume that the risk-free rate is 5%, and the market risk premium is 6%. If no
unsystematic influence affected Barges' return, the beta for Barges is ______. 

Slippery Slope Roof's net cash flows are as follows:

Cash flow
After year 3, net cash flows grew at a constant rate of 3%. The weighted average cost
of capital is 9%. What is the value of the firm?  PV
WACC

PV of TV
Value of the firm

The Norris Co. has an improved version of its hotel stand. The investment cost is
expected to be $72 million and will return $13.5 million for 5 years in net cash flows.
The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%,
and the tax rate is 34%. The appropriate discount rate, assuming average risk, is: 
The net cash flows of Advantage Leasing for the next 3 years are $42,000, $49,000
and $64,000 respectively, after which the growth rate will be a constant 2% with a
WACC of 8%. What is the present value of the terminal value? 

WACC
g

PV of TV
value of the firm
The Hold-n-Trade Co. is an all-equity financed firm. The beta is .9, the market risk
premium is 7% and the risk-free rate is 5%. What is the expected return of Hold-n-
Trade? 

Beta
Rm-rf
Rf

Given the sample of returns of the Top Black Asphalt Company and the S&P 500
index, calculate Top Black's covariance and beta.

Given the sample of returns of the Top Black Asphalt Company and the S&P 500
index, calculate Top Black's correlation. What can be said about the relationship of Top
Black and the market return behavior? 
Eyes of the World Corporation has traditionally employed a firm wide discount rate for
capital budgeting purposes. However, its two divisions - publishing and entertainment -
have different degrees of risk given by ßP = 1.0, ßE = 2.0, and the beta for the overall
firm is 1.3. The firm is considering the following capital expenditures:

Beta
Discount rate

Which projects would the firm accept if it uses the opportunity cost of capital for the
entire company? Which projects would it accept if it estimates cost of capital separately
for each division? Use 6% as the risk-free rate and 12% as the expected return on the
market. 

On-line Text Co. has four new text publishing products that it must decide on publishing
to expand its services. The firm's WACC has been 17%. The projects are of equal risk,
ßs of 1.6. The risk-free rate is 7% and the market rate is expected to be 12%. The
projects are expected to earn as follows:
What projects should be selected and why? 

ABC is considering acquiring XYZ and has compiled this information on XYZ: 
The applicable tax rate is 30 percent and the terminal value of XYZ as of Year 3
is $2.5 million. What is PV0 of this acquisition if the discount rate is 7.1
percent?
 111.111111111111

wf We*fe+wd*fd 0.08

Cost of expansion 108.695652173913

Debt to equity ratio D/E 0.45/1 1.45

Weight of debt Debt/debt+equity 0.310344827586207

weight of equity Equity/debt+equity 0.689655172413793 8.6

weights
Bonds 80000000 0.333 kd
Shares 160000000 0.666666666666667 ke
Total value 240000000
Beta 1.1 4 Rf
ke 12.8
rf+beta*(rm-rf)
WACC 10.375

cost
kd 7 equity
ke 11 pref stock
kp 8 bonds
Value
WACC 9.1433417721519 tax rate

WACC 9
kd 5
ke 11
weight of equity we 67%
weight of debt 1-we 33%

9=we*11+(1-we)*5 we
9=11we+5-5we 4=6we we 0.666666666667

weights
Equity 7560000 0.56 0.56
Bonds 5940000 0.44 0.44
Value 13500000
YTM 0.0725

WACC 6.92%

beta 0.75
Rm-rf 8
rf 4
Expected rate 10

beta 1.2
rf 2
Rm 9
Ke 10.4

ke 8.4
Rm 10
Rf 5
Ke = rf+beta*(rm-rf)

8.4=5+beta*(10-5) 8.4-5=5beta
Beta 0.68 0.68

Beta 1.6
Rf 5
Rm-rf 4
Expected return 11.4

Ke 12
rf 5
rm-rf 6
beta ? 1.17
12=5+beta*6 7 = 6beta beta = 7/6 1.166666666667

1 2 3 4
70000 60000 96000 98880

64220.1834862385 50500.7995959936 74129.6140858622 1648000

1272558.37514063
1461408.97230873

wd 0.5 1-Jan
we 0.5
ke 13
kd 9
WACC 9.47
 1 2 3 4
42000 49000 64000 65280
38888.8888888889 42009.6021947874 50805.2634252909 1088000
8 775000
2

863689.478229944 615219.986790631
746923.741299598

0.9
7
5

Year Stock market

1 0.15 0.08
2 0.06 0.02
3 -0.1 -0.07
4 0 0.03
5 0.04 0.02

Average return 0.03 0.016

COV (stock, market)/ Var of market

1.58703071672355
Correlation coefficient 0.942931396447
 P E Overall firm
1 2 1.3
12 18 13.8
Accept P1, and P2 Reject all
WACC 13.8 Overall cost of capital for entire compan

Accept Reject
E1 P1
E2 P2
E3 P3
Year 1 2 3
EBIT 318000 364000 392000
tax 30% 95400 109200 117600
Profit after tax 222600 254800 274400
Capital spending 46500 28000 36200
Increase in net working capital 5500 6500 1200
Depreciation 34000 32100 28700
Net cash flow 204600 252400 265700

PV 191036.414565826 220044.444793168 216283.376991

PV of terminal value 2035033.65629423

value of the firm 2662397.89264418

ke 20 fe 10
we 0.5 fd 2
wd 0.5
kd 10 Wf 6

WACC 13.3

PV of cash flow 73150

PV of cash flow 550000
Without flotation cost 500000 50000 NPV
Ist option 555555.55555556 -5555.556
II nd 510204.08163265 39795.918
Mix of debt and equity 531914.89361702 18085.106

Value 1.45

Wf 8.6

8.5 wd
 12.8 we

8% Rm-rf 8

weights
2080000 0.526582278481
1360000 0.3443037974684
510000 0.1291139240506
3950000

Do 1.593
D1 1.66
P 36.00
g 0.04
ke
Ke=(D1/P)+g 0.04602 Div ye
0.04602
Ke 0.08602

P= Div1/(Ke-g)
infinite period

TV

D/E 1.00
Value 2
Wd 0.5
 4
62000
TV
TV

Year stock market

SQ dev Sq De
Dev of stock dev of market Sd*Md Stock Market 1 0.15 0.08
0.12 0.064 0.00768 0.0144 0.004096 2 0.06 0.02
0.03 0.004 0.00012 0.0009 0.000016 3 -0.1 -0.07
-0.13 -0.086 0.01118 0.0169 0.007396 4 0 0.03
-0.03 0.014 -0.00042 0.0009 0.000196 5 0.04 0.02
0.01 0.004 0.00004 0.0001 0.000016
0.03 0.016
COV 0.00465 0.0083 0.00293

0.0911043 0.0541295
ll cost of capital for entire company
dev of stock dev in market Dev (stock Sq dev of ssq dev market

0.12 0.064 0.00768 0.0144 0.004096

0.03 0.004 0.00012 0.0009 0.000016
-0.13 -0.086 0.01118 0.0169 0.007396
-0.03 0.014 -0.00042 0.0009 0.000196
0.01 0.004 0.00004 0.0001 0.000016

0.00465 0.0083 0.00293 Var

0.091104 0.054129 SD
Year
Activity Description
Year 2020 2021 2022 2023 2024

Activity 1 Institute building, Hostels and Other

facilities are already compeleted (one
hostel under construction)

Activity 2 Recruitment of Faculty (This activity

is to be conducted every year

Activity 3 Purchase of computer lab equipment

(As per requirement due to increase
in intake of MBA (BA) course

Increase in bloomberg terminals

Activity 4 access or market related software
(due to increase in intake in MBA
(QF)

Purchase of other informational

Activity 5 resources as per requirement (yearly
basis)

Other
routine
activities
conudcted
every year

Actvity Advertising for the programmes 

Admission process dates
  Commencement of the new
programmes
Teaching and examinations
according to the academic cycle
Budgeting, planning and controlling
for the next year
2025
Revenue