# Corp Fin Lunch Crunch

Allen Corporation is planning to expand into the fast developing business of renting video movies. Allen has debt-to-equity ratio of 1, its pretax cost of debt is 15%, and its marginal tax rate is 40%. The Gardner Corporation is already in the video business, has a β of 1.5, debt-to-equity ratio of 0.75, and marginal tax rate of 25%. What beta should Allen use in evaluating this project? What is the required return on the project if the riskless rate is 10% and the expected return on the market is 20%? Southampton Publishing Corporation has tax rate of 40%, debt-to-equity ratio of 40%, and has (leveraged) beta of 1.25. The riskless rate is 9% and the market return is 16%. Victoria Publishing Company is an all equity company and is in the same business. What is the required rate of return by the Victoria stockholders? Dauphin Corporation has 15% cost of equity, 40% tax rate, and debt-to-equity ratio of 30%. Fayette Corporation has 35% tax rate and debt-to-equity ratio of 50%. Both Dauphin and Fayette are in the same business of selling automotive parts. If the riskless rate is 8% and the expected return on the market is 13%, find the cost of equity for Fayette. Jeddah Restaurants has debt/equity ratio .5, and its leveraged beta is 1.6. Its tax rate is 30%, and its cost of equity is 16%. The risk-free rate is 6%. Masturah Restaurants has debt/equity ratio .4, and tax rate 35%. Find the cost of equity for Masturah. Taurus Corporation has the following dividend policy: if the earnings after taxes are less than \$1 million, the dividend payout ratio will be 35%, but if these earnings are over \$1 million, the dividend payout ratio will be 45%. The EBIT of Taurus for next year is expected to be \$6 million with a standard deviation of \$4 million. Taurus has \$20 million in long-term bonds with coupon of 9%, and 1.5 million shares of common stock. Calculate the probability that Taurus will give a dividend of more than \$1 per share. The tax rate of Taurus is 30%. Rogers Corporation stock sells at \$27 per share and its dividend per share is \$1.20. Rogers has price-earnings ratio 16. The company has \$40 million worth of bonds, selling at par, with 8.5% coupon. The EBIT of Rogers is \$12 million and its tax rate is 30%. Calculate: (a) the dividend payout ratio, (b) the total number of shares, © the total value of Rogers. The expected EBIT of Krupa Co next year is \$20 million with standard deviation of \$4 million. The tax rate of Krupa is 30% and it has 10 million shares of common, stock. Krupa has to pay \$8 million in interest and \$5 million in a sinking fund. What is the probability that Krupa will be able to pay a dividend of \$1 per share next year and still have some money left over as retained earnings? Ithaca Company has 5 million shares of common stock selling at \$50 each. It also has \$100 million in long-term bonds with coupon 8%, selling at 90. The tax rate of Ithaca is 32%. Next year its EBIT is expected to be \$20 million with a standard deviation of \$8 million. The company plans to continue its \$2 dividend per share. Ithaca also wants to add \$5 million to its total retained earnings next year. Find the probability that it will be able to maintain its dividend.

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where did you get these questions?

allegro-cpa/cfa Wrote: ------------------------------------------------------- > where did you get these questions? Good question. Little point in posting these without citing a source or any kind of answer key.

I’ll post answers once I see attempts at solutions. Until then…