# DEVRY FIN 516 Week 4 Midterm

## DEVRY FIN 516 Week 4 Midterm

DEVRY FIN 516 Week 4 Midterm

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FIN 516 Week 4 Midterm
1. Question : (TCO C) Pate & Co. has a capital budget of \$3,000,000. The company
wants to maintain a target capital structure that is 15 percent debt and 85 percent
equity. The company forecasts that its net income this year will be \$3,500,000. If the
company follows a residual dividend policy, what will be its total dividend payment?
2. Question : (TCO F) The following data applies to Saunders Corporation's
convertible
bonds:
Maturity: 10
Stock price: \$30.00
Par value: \$1,000.00
Conversion price: \$35.00
Annual coupon: 5.00%
Straight-debt yield: 8.00%
What is the bond's straight-debt value?
(a) \$684.78

(b) \$720.82
(c) \$758.76
(d) \$798.70
(e) \$838.63

3. Question : (TCO B) The Congress Company has identified two methods for
producing playing cards. One method involves using a machine having a fixed cost
of \$10,000 and variable costs of \$1.00 per deck of cards. The other method would use
a less expensive machine (fixed cost = \$5,000), but it would require greater variable
costs (\$1.50 per deck of cards). If the selling price per deck of cards will be the same
under each method, at what level of output will the two methods produce the same
net operating income (EBIT)?
(a) 5,000 decks
(b) 10,000 decks
(c) 15,000 decks
(d) 20,000 decks
(e) 25,000 decks
4. Question : (TCO B) Firm L has debt with a market value of \$200,000 and a yield of
nine percent. The firm's equity has a market value of \$300,000, its earnings
are growing at a rate of five percent, and its tax rate is 40 percent. A similar firm
with no debt has a cost of equity of 12 percent. Under the MM extension with
growth, what is Firm L's cost of equity?
(a) 11.4%
(b) 12.0%
(c) 12.6%
(d) 13.3%
(e) 14.0%

5. Question : (TCO A) Which of the following...