BUSN 379 Coupon Rates/TUTORIALOUTLET DOT COM BUSN 379 Coupon Rates/TUTORIALOUTLET DOT COM | Page 2

the plant has projected net income of $1,253,000, $1,935,000,
$1,738,000, and $1,310,000 over these four years, what is the
project’s average accounting return
(AAR)?
12. Problems with IRR. Howell Petroleum, Inc., is trying to evaluate a
generation project with the
following cash flows: Year Cash Flow
0 −$31,000,000
1 48,000,000
2 −7,000,000
a. If the company requires a 10 percent return on its investments,
should it accept this project? Why? b. Compute the IRR for this
project. How many IRRs are there? If you apply the IRR decision
rule, should
you accept the project or not? What’s going on here?
CHAPTER 6:
16.Calculating Real Returns. Refer to Table 10.1. What was the
average real return for Treasury bills from
1926 through 1932?
CHAPTER 7: 11 and 12
11.Finding the Target Capital Structure. Fama’s Llamas has a WACC
of 8.65 percent. The company’s cost
of equity is 11 percent, and its cost of debt is 6 percent. The tax rate is
35 percent. What is Fama’s target
debt-equity ratio?
12.Book Value versus Market Value. Vedder, Inc., has 5 million
shares of common stock outstanding.
The current share price is $73, and the book value per share is $9.
Vedder also has two bond issues
outstanding. The first bond issue has a face value of $60 million, a
coupon rate of 7 percent, and sells for
98 percent of par. The second issue has a face value of $40 million, a
coupon rate of 6.5 percent, and
sells for 97 percent of par. The first issue matures in 20 years, the
second in 12 years.
a.What are the company’s capital structure weights on a book value
basis?