1-     The Modern Language Corporation earned $1.6 million on net assets of $20 million. The cost of capital is 11.5%. Calculate the net ROI and EVA. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter "EVA" answer in millions rounded to 1 decimal place.)

  ROI

 %        

  EVA

$  million  

“A project’s economic income for a given year equals the project’s  (Click to select) Cash flow Investment  less its  (Click to select) Economic Book  depreciation. New projects may take several years to reach full profitability. In these cases book income is  (Click to select) less more  than economic income early in the project’s life and  (Click to select) lesser greater  than economic income later in its life.”

3-     The table below shows a condensed income statement and balance sheet for Androscoggin Copper’s Rumford smelting plant (figures in $ millions). Assume the cost of capital is 9%.

  Income Statement for 2013

  Assets, December 31, 2013

  Revenue

$

56.66

  Net working capital

$

7.08   

  Raw materials cost

18.72

  Operating cost

21.09

  Investment in plant and equipment

69.33   

  Depreciation

4.50

  Less accumulated depreciation

21.01   

  Pretax income

12.35

  Net plant and equipment

48.32   

  Tax at 35%

4.32

  Net income

$

8.03

  Total assets

$

55.40   

a.

Calculate the plant’s EVA. (Enter your answer in millions rounded to 2 decimal places.)

  EVA

$  million  

b.

The table above shows, the plant is carried on Androscoggin’s books at $48.32 million. However, it is a modern design, and could be sold to another copper company for $95 million. How should this fact change your calculation of EVA? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 2 decimal places.)

  EVA

$  million  

4-     Select the appropriate terms for the following:

a.

If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be  (Click to select) warrant preferred stock subordinated floating rate common stock convertible senior .

b.

Interest on many bank loans is based on a  (Click to select) senior subordinated floating rate convertible warrant preferred stock common stock  of interest.

c.

A(n)  (Click to select) convertible common stock warrant senior preferred stock subordinated floating rate  bond can be exchanged for shares of the issuing corporation.

d.

A(n)  (Click to select) floating rate subordinated senior warrant preferred stock convertible common stock  gives its owner the right to buy shares in the issuing company at a predetermined price.

e.

Dividends on  (Click to select) convertible senior floating rate common stock warrant subordinated preferred stock  cannot be paid unless the firm has also paid any dividends on its  (Click to select) common stock subordinated preferred stock convertible warrant floating rate senior .

5-     In 2011 Beta Corporation earned gross profits of $760,000.

a.

Suppose that it is financed by a combination of common stock and $1 million of debt. The interest rate on the debt is 10%, and the corporate tax rate is 35%. How much profit is available for common stockholders after payment of interest and corporate taxes? (Enter your answer in nearest dollars not in millions.)

  Profit

$   

b.

Now suppose that instead of issuing debt Beta is financed by a combination of common stock and $1 million of preferred stock. The dividend yield on the preferred is 8% and the corporate tax rate is still 35%. How much profit is now available for common stockholders after payment of preferred dividends and corporate taxes? (Enter your answer in nearest dollars not in millions.)

  Profit

$