FIN 620 Long-term Financial Management Homework Assignment 2 Answers – Homeworkmade

DOWNLOAD: FIN 620 Long-term Financial Management Homework Assignment 2 Answers – Homeworkmade

FIN 620 Homework Assignment 2

Problem 13­-2 Calculating Cost of Debt

Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 17 years to maturity that is quoted at 95 percent of face value. The issue makes semiannual payments and has a coupon rate of 8 percent annually. 

Problem 13­-12 Finding the WACC

Titan Mining Corporation has 9.3 million shares of common stock outstanding and 260,000 6.8 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.20, and the bonds have 20 years to maturity and sell for 104 percent of par. The market risk premium is 7 percent, T­bills are yielding 3.5 percent, and Titan Mining’s tax rate is 35 percent. 

Problem 13­-16 WACC and NPV

Och, Inc., is considering a project that will result in initial aftertax cash savings of $3.5 million at the end of the first year, and these savings will grow at a rate of 4 percent per year indefinitely. The firm has a target debt–equity ratio of .55, a cost of equity of 13 percent, and an aftertax cost of debt of 5.5 percent. The cost­saving proposal is somewhat riskier than the usual projects the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 per cent to the cost of capital for such risky projects.