6. Given the following information for Lightning Power Co Tax: the company\'s ta

Question

6. Given the following information for Lightning Power Co Tax: the company's tax rate is 35 percent. Debr: 8,000 of 6.5 percent coupon selling for $1.060, the boads make sli Common Stock: 310,000 shares outstandind sn outstanding. Preferred stock: 15,000 shares share. The preferred stock pays an Market: 7 percent What is the company's outstanding. 51000 par value, 25 years to maturity of preterred stock outstanding, currently selling for $72 per capital structure (in percentage terms); debt- prefersed-common selling for $57 per share; the Beta is 1.05 for $57 per sharely annual fixed dividend of S4. market risk premium and 4.5 percent risk-free rate. A) 25%-5%-70 % B) 5%-34%-61% C) 3196-4%-65% D) 20%-3%-77% 7. Assume that the risk-free rate of return is 4%, and the expected return on the market portfolio is 10%. If the systematic risk inherent in the stock of ABC Corporation is 1 .30, using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC. A. 14.0% B. 14.8% C. 22.0% D. 16.8% 8. Severe imperfections in the labor market arise from immobility of workers due to immigration to which one of the reason for FDI. barriers. These imperfections lead A. persistent wage differentials among countries. B. persistent exchange rate volatility among countries. C. persistent interest rate differentials among countries. D. none of the above 9. When evaluating capital budgeting projects from parent firm perspective, which of the following would be a sure indicator of an acceptable project? A) parent firm NPV> SO, local project NPV>SO B) parent firm NPV $0, local project NPV SO D) All of the above are sure indicators.

Explanation / Answer

1.
Debt=8000*1060=8480000
Preferred stock=15000*72=1080000
Common stock=310000*57=17670000

Hence, proportion of debt=8480000/(8480000+1080000+17670000)=31%
proportion of preferred stock=1080000/(8480000+1080000+17670000)=4%
proportion of equity=100%-31%-4%=65%

2
expected return=risk free+beta*(market return-rsik free)=4%+1.8*(10%-4%)=14.8%

3
persistent wage differnetials among countries
4
both the NPV are greater than zero then it would be sure indicator hence option A

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