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Grading Summary |
These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. | Date Taken: | 9/25/2011 | Time Spent: | 1 h , 14 min , 19 secs | Points Received: | 90 / 100 (90%) | | Question Type: | # Of Questions: | # Correct: | Short | 6 | N/A | | |
Grade Details |
1. | Question : | (TCO C) Pate & Co. has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15 percent debt and 85 percent equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?*…show more content…*

Straight debt issue would require a 8% coupon. Call the bonds when the conversion value is greater than $800. Conversion ratio = Par value of the convertible bond / Conversion price of equity CR = $1,000 / $35 CR = 28.57 Use the financial calculator to determine the straight-debt value: N = 10 I/YR = 8% PMT = 28.57 FV = 1000 Solve for PV = $684.78 | | Instructor Explanation: | Answer is: d Chapter 19: pp. 770-774 Inputs to find the straight-debt value: N = 10; I/YR = 8; PMT = 50; FV = 1,000. $798.70 | | | | Points Received: | 5 of 10 | | Comments: | | | | 3. | Question : | (TCO B) The Congress Company has identified two methods for producing playing cards. One method involves using a machine having a fixed cost of $10,000 and variable costs of $1.00 per deck of cards. The other method would use a less expensive machine (fixed cost = $5,000), but it would require greater variable costs ($1.50 per deck of cards). If the selling price per deck of cards will be the same under each method, at what level of output will the two methods produce the same net operating income (EBIT)? (a) 5,000 decks (b) 10,000 decks (c) 15,000 decks (d) 20,000 decks (e) 25,000 decks | | | Student Answer: | | Answer: B 10,000 decks Method 1 = (10,000 * $1.00) + $10,000 Method 1 = $20,000 cost Method 2 = (10,000 * $1.50) + $5,000 Method 2 = $20,000 cost At 10,000 decks, the cost is the same between the 2 methods. | | Instructor Explanation:

Straight debt issue would require a 8% coupon. Call the bonds when the conversion value is greater than $800. Conversion ratio = Par value of the convertible bond / Conversion price of equity CR = $1,000 / $35 CR = 28.57 Use the financial calculator to determine the straight-debt value: N = 10 I/YR = 8% PMT = 28.57 FV = 1000 Solve for PV = $684.78 | | Instructor Explanation: | Answer is: d Chapter 19: pp. 770-774 Inputs to find the straight-debt value: N = 10; I/YR = 8; PMT = 50; FV = 1,000. $798.70 | | | | Points Received: | 5 of 10 | | Comments: | | | | 3. | Question : | (TCO B) The Congress Company has identified two methods for producing playing cards. One method involves using a machine having a fixed cost of $10,000 and variable costs of $1.00 per deck of cards. The other method would use a less expensive machine (fixed cost = $5,000), but it would require greater variable costs ($1.50 per deck of cards). If the selling price per deck of cards will be the same under each method, at what level of output will the two methods produce the same net operating income (EBIT)? (a) 5,000 decks (b) 10,000 decks (c) 15,000 decks (d) 20,000 decks (e) 25,000 decks | | | Student Answer: | | Answer: B 10,000 decks Method 1 = (10,000 * $1.00) + $10,000 Method 1 = $20,000 cost Method 2 = (10,000 * $1.50) + $5,000 Method 2 = $20,000 cost At 10,000 decks, the cost is the same between the 2 methods. | | Instructor Explanation:

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