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CORPORATE FINANCE FINAL EXAM WITH CORRECT ANSWERS #17.
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CORPORATE FINANCE FINAL EXAM WITH CORRECT ANSWERS #17Indenture agreement contains bond terms - correct answer Maturity date
Par value
Time to maturity
Call feature
Coupon Rate
Bond Issuers - correct answer US Treasury $1,000
Corporations $1,000
Municipalities $5,000
Zero-coupon bond - correct answer No interest payments
Pays par value at maturity
Yield to Maturity (YTM) - correct answer Discount rate that equates the present value of
future cash flows with current bond price
Stock Companies - correct answer 3M, Alcoa, American Express, AT&T, Bank of
America, Boeing, Walt Disney, General Electric, IBM, Wal-Mart
WACC - correct answer Weighted Average Cost of Capital (WACC) is the average cost
per dollar of capital raised. Weights are based on market values, not book values
Beta - correct answer Measures the sensitivity of a stock or portfolio to market risk
Component Cost of Debt - correct answer Two-part calculation
1) Estimate before-tax cost of debt by using Yield to Maturity
2) Solve for interest rate that makes price equal to sum of present values for coupons
and face value of bond
A decrease in net working capital (NWC) is treated as a - correct answer cash inflow
The best approach to convert an infinite series of asset purchases into a perpetuity is
known as the - correct answer Equivalent annual cost approach
Suppose you sell a fixed asset for $75,000 when its book value is $80,000. If your
company's marginal tax rate is 35%, what will be the effect on cash flows of this sale
(i.e., what will be the after-tax cash flow of this sale)? - correct answer $76,750
AT CF = $80,000 + ($75,000 - $80,000) x (1 - .35) = $76,750
Your company is considering a new project that will require $2,000,000 of new
equipment at the start of the project. The equipment will have a depreciable life of 10
years and will be depreciated to a book value of $250,000 using straight-line
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