FINANCE 2152-Jack's Construction Co. has 80,000 bonds

1. Jack's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. Jack's tax rate is 35%. What is Jack's weighted average cost of capital?
A. 7.10 %
B. 7.39 %
C. 10.38 %
D. 10.65 %
E. 11.36 %

2. The NuPress Valet Co. has an improved version of its hotel stand. The investment cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. The appropriate discount rate, assuming average risk, is:
A. 8.65%
B. 9%
C. 9.47%
D. 10

3. The cost of equity for Ryan Corporation is 8.4%. If the expected return on the market is 10% and the risk-free rate is 5%, then the equity beta is __.
A. 0.48
B. 0.68
C. 1.25
D. 1.68
E. Impossible to calculate with information

4. A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,600. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 11%?
A. $8,798.29
B. $9,896.87
C. $10,072.72
D. $13,353.41
E. $20,398.29

5. Sanjay's Incorporated is analyzing two machines to determine which one it should purchase. The company requires a 14% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Sanjay's purchase and why? (Round your answer to the nearest whole dollar.)
A. machine A; because it will save the company about $8,600 a year
B. machine A; because it will save the company about $132,912 a year
C. machine B; because it will save the company about $200,000 a year
D. machine B; because it will save the company about $11,600 a year
E. machine B; because its equivalent annual cost is $199,759