1. (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?

(a) 40.61%
(b) 42.75%
(c) 45.00%
(d) 47.37%
(e) 49.74% (Points : 10) |

Question 2.2. (TCO F) Chocolate Factory's convertible debentures were issued at their $1,000 par value in 2009. At any time prior to maturity on February 1, 2029, a debenture holder can exchange a bond for 25 shares of common stock. What is the conversion price, Pc?

(a) $40.00
(b) $42.00
(c) $44.10
(d) $46.31
(e) $48.62 (Points : 10) |

Question 3.3. (TCO B) Ang Enterprises has a levered beta of 1.10, its capital structure consists of 40 percent debt and 60 percent equity, and its tax rate is 40 percent. What would Ang's beta be if it used no debt, i.e., what is its unlevered beta?

(a) 0.64
(b) 0.67
(c) 0.71
(d) 0.75
(e) 0.79 (Points : 20) |

Question 4.4. The following data applies to Saunders Corporation's convertible bonds: | Maturity: 15 | Stock price: $30.00 | Par value: $1,000.00 | Conversion price: $35.00 | Annual coupon: 7.00% | Straight-debt yield: 9.00% | What is the bond's straight-debt value? |

a) 684.78
b) 720.82
c) 838.79
d) 902.76
e) 938.63
(Points : 20) |

Question 5.5. Suppose you believe that Johnson company's stock price is going to increase from its current level | of $60.00 sometime during the next 5 months. For $600 you can buy a 5 month call option giving | you the right to buy 100 shares at a price of $35 per share. If you buy this option for $600 and | Johnson's stock price actually rises to $70 what would your pretax profit be? |

a) 2,800
b) 2,900
c) 3,000
d)