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33. Filer Manufacturing has 8.9 million shares of common stock outstanding. The
current share price is $59, and the book value per share is $4. The company also
has two bond issues outstanding. The first bond issue has a face value of $71.2
million and a coupon rate of 7.6 percent and sells for 107.7 percent of par. The
second issue has a face value of $61.2 million and a coupon rate of 8.1 percent and
sells for 110.1 percent of par. The first issue matures in 8 years, the second in 27
years.
Suppose the company’s stock has a beta of 1.2. The risk-free rate is 3.7 percent,
and the market risk premium is 7.6 percent.
34. When estimating the cost of equity using the DDM, which one of these is most
apt to add error to this estimate?
35. When computing WACC, you should use the:
36. The cost of preferred stock:
37. No matter how many forms of investment analysis you employ:
38. Which statement concerning the net present value (NPV) of an investment or a
financing project is correct?
39. The net present value method of capital budgeting analysis does all of the
following except:
40. Graham and Harvey (2001) found that _____ were the two most popular
capital budgeting methods.
41. The primary reason that company projects with positive net present values are
considered acceptable is that:
42. What is the net present value of a project with an initial cost of $36,900 and
cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The
discount rate is 13 percent.
43. Flatte Restaurant is considering the purchase of a $10,800 soufflé maker. The
soufflé maker has an economic life of five years and will be fully depreciated by
the straight-line method. The machine will produce 2,400 soufflés per year, with
each costing $2.80 to make and priced at $5.65. Assume that the discount rate is 16
percent and the tax rate is 35 percent.
What is the NPV of the project?
Should the company make the purchase?
44. A project costing $6,200 initially should produce cash inflows of $2,860 a year
for three years. After the three years, the project will be shut down and will be sold
at the end of Year 4 for an estimated net cash amount of $3,300. What is the net
present value of this project if the required rate of return is 11.3 percent?
45. Down Under Boomerang, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.73 million. The fixed
asset will be depreciated straight-line to zero over its three-year tax life, after
which it will be worthless. The project is estimated to generate $2,090,000 in