OM FINAL

FIN 351 FALL 201$ Midterm 2

Name:

-b- •‘%

rage

Section Number

o______

( 1. Suppose the Widget Company has a capital structure composed of the following, in

billions: Debt $40, Common equity $55, Preferred stock $5. The debt rating is of AA. The yield on AA dis 10%. The marginal tax rate is 35%. The preferred annual dividend is

$10, current stock price is $100. If the risk-free rate is 3 the expected JLtial /VRp is’. and the company’s stock beta is 1.50. What is Widget’s weighted average

cost of capital? + cAty+ e’ve- +c-l q-o -- +

I

IisD e. -r

U _— = Q. Q,El00

- — o,Yp - (0(7

A cc ci - ) t -I- OOX0

= OO2€ -I- O.022 + 0.00-k

2. Calculate DOL, DFL, DTL and QBE, QOBE of a company: L2 Number of units produced and sold: 2,000 P Sales price per unit: 300 V Variable cost per unit: 100

Fixed operating cost: 50,000 C Fixed financing expense: 20,000

p—v) øo(Q0—I0) Do L

_____

a cp—v)-- P ) (100 —foc) —ooo

( D = -

_____

oooU0 —too) o0_QoOO

_____

Yt,C= Q.t -4- .XAA

= % + (so c2 =

4.00, 1)00

000 =p-i*J

t,

DiL = DOL)<OL( x(o

(9 + 000 - )O 000 7o, 01)0

P — V — 00 -, 0

______

—

@ = -_ V, 000

t3J