1. Consider the following data for Zips Manufacturing and the federal money markets: U.S. 30 year t-bond yield = 3.3% Market Risk Premium = 6 % Tax Rate = 21% Long-term debt = $87.21 billion Rating of debt = Aa2 (103 basis points) Beta = 1.16 Market capitalization = $265.99 billion Book value of equity = $71.64 billion Book Value/share = 217.33 Market price/share = 806.84 Earnings Per Share = 32.21 Price Earning Multiple = 25.05 Number of Shares Outstanding = 329.66 million Zips Cost of Capital is:
a. 5.10% b. 4.71% c. 6.96% d. 10.26% e. 8.57%
2. Consider the following information regarding Cruz Electronics: 2018 2019 2020 EBIT $2000 $2500 $2800 Capital Expenditures $500 $500 $500 Changes in Working capital $40 $(10) $(20) Depreciation $50 $60 $100 Assume a 21% tax rate and that after 2020 the EBIT growth rate will be 2% annually; depreciation will equal capital expenditures, and that net working capital will not change. Also assume a discount rate of 12%. What is the NPV of Cruz Electronics total free cash flow for the period 2018 through 2020?
a. $3,925 b. $3,182 c. $3,137 d. $4,731 e. $3,509