Assignment 4A

assignment_4.xlsx

Instructions

			Instructions
NAME:
	To complete the homework assignments in the templates provided:
	1.	The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases.
	2.	You will enter the required information into the shaded cells.
	3.	The cells are coded:
		a) T requires a text answer. Essay questions require references; use the textbook.
		b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary.
		c) F requires a number only. In some problems, a “Step 1” is added to help you solve the problem.
		d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).
	4.	Name your assignment file as "lastnamefirstinitial-FINC600-Week#", and submit by midnight ET, Day 7.

Problem 9-2
A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company’s common stock is .5.
Risk Free Debt	Interest Rate	Market Risk Premium	Beta	Taxes
40%	10%	8%	0.5	35%
a. What is the company cost of capital?
b. What is the after-tax WACC, assuming that the company pays tax at a 35% rate?
Answers:
Step 1:
r(d)=	10%
r(e)=	C
D/V	C		TIP: D + E = V
E/V	C
Step 2:
a.		Formula (in words)	Calculation
	Cost of Capital	T	C
b.	WACC	T	C

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Principles of Corporate Finance, Concise, 2nd Edition

Problem 10-14
Suppose that the expected variable costs of Otobai’s project are ¥33 billion a year and that fixed costs are zero. a. How does this change the degree of operating leverage (DOL)? b. Now recompute the operating leverage assuming that the entire ¥33 billion of costs are fixed.
Answers:
	See page 243, Table 10.1, of textbook for additional information. Copy is also provided below.
	DOL Formula	Fixed Costs	Calculation
a.	1+(Fixed cost + depreciation)/ operating profit	37.50	C
b.	1+(Fixed cost + depreciation)/ operating profit	37.50	C

Instructions: Please refer to your book for assistance with your homework. Post your work in the worksheet. Highlight your final answer.

Principles of Corporate Finance, Concise, 2nd Edition