Finc 5000 Final Exam Part B, Problems

FINC 5000 Final Exam Part B, Problems
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Directions:   You may complete the exam in Excel or in Word.

•   If you choose to complete the exam in Excel, open the Excel program and create a new spreadsheet named final exam (your last name).   Then answer the following questions on the spreadsheet.   You may put each problem on a separate tab in the spreadsheet if you like.   Save the file when you are finished, then submit the exam on the course website just as you would a normal homework assignment.

•   If you choose to complete the exam in Word, open the Word program and create a new document named final exam (your last name).   Then answer the following questions on the document.   Be sure to show your calculations.   Save the file when you are finished, then submit the exam on the course website just as you would a normal homework assignment.



Question 1:   (Cost of Capital)   8 points

Pine Tree Farms Corporation (PTFC) has a target capital structure of 20% debt, 10% preferred stock, and 70% common equity.   Currently PTFC has a capital structure of 70% debt, 10% preferred stock, and 80% common stock. The after tax cost of debt is 4.5%.   The preferred stock has a par value of $100 per share, a $5 per share dividend, and a market price of $70 per share.   The common stock of PTFC trades at $97 per share and has a projected dividend   (D1) of $2.60.   The stock price and dividend are expected to continue to grow at 7% per year for the foreseeable future.

What is PTFC’s weighted average cost of capital (WACC)?


Question 2:   (Capital Budgeting)   4 points

Consider Projects A and B, with net cash flows as follows:

---- Net Cash Flows ----
        Project A Project B

            Initial Cost at T-0 (Now)               ($30,000) ($50,000)
cash inflow at the end of year 1         10,000     6,000
cash inflow at the end of year 2           8,000...