1.)Smile Inc. has its corporate headquarters in Iowa. M Corp. is thinking of installing a lockbox system in Baltimore to collect payments from the East. The collection time is currently 6 days and would be reduced to 4 days if the system is installed. Daily interest on T-bills is .017%. The average number of daily payments is 840 and the average check size is $150. If the bank charges 4¢ per check, should the company get the lockbox?

2.)A firm needs to raise $250 million for a project. If external financing is used, the firm faces flotation costs of 11% for equity and 8% for debt. If the project is to be financed 70% with equity and 30% with debt, how much cash must the firm raise in order to finance the project?

3.)Suppose that your firm has a cost of equity of 12% and a cost of debt of 8%. If the target debt/equity ratio is 0.60, and the tax rate is 30%, what is the firm’s weighted average cost of capital (WACC)?

4.)Your company has a $250,000 line of credit through a local bank. The bank requires a 10% compensating balance and charges 15 % on the amount borrowed against the line. If the company needs $50,000 to purchase inventory, what is the effective interest rate on the loan?

5.)The long-term debt of your firm is currently selling for $920 . The issue matures in 10 years and pays annual coupon of 12% in semiannual payments. What is the cost of debt assuming a tax rate of 30%?

6.)What would be the reward-to-risk ratio for asset A and Asset B assuming that the market is in equilibrium? Asset A has a beta of 1.2 and Asset B has a beta of .75 and the expected return in the market is 15% and the risk free rate is 4%.

7.)Using the information from the last problem, what would be the expected return on both asset A and asset B individually?

8.)You own a portfolio that has $5,200 invested in Stock A and $3,400 invested in Stock B. If the expected returns on these stocks are 9 percent and 14 percent, respectively, what is the expected return on the portfolio?

9.)A stock has a beta of 1.25, the expected return on the market is 14 percent, and the risk-free rate is 5.2 percent. What must the expected return on this stock be?

10.)Suppose Iowa State Ltd. Just issued a dividend of $1.65 per share on its common stock. The company paid dividends of $.95, $.99, $1.25, and $1.40 per share in the last four years. Estimate the dividend growth rate using the historical average approach. What is the DGR?

11.)

Consider the following financial statement information for the Bulldog Icers Corporation:

Item / Beginning / Ending
Inventory / $9,215 / $10,876
Accounts Receivable / 5.387 / 5,932
Accounts Payable / 7,438 / 7,847
Net Sales / $85,682
Cost of Goods Sold / $57,687

Calculate the operating and cash cycles. How do you interpret your answer?

12.)Your firm has an average collection period of 38 days. Current practice is to factor all receivables immediately at a 2 percent discount. What is the effective cost of borrowing in this case? Assume that default it extremely unlikely.