[Solved] Week 10 Activity – Financial Calculations

Assignment Prompt & Instructions

[>Accounting homework help](https://www.sweetstudy.com/fields/business-finance-accounting)

## **Overview**

These problems are related to the content covered in Chapter 6.

## **Instructions**

Download the [Week 10 Assignment template](https://canvas.strayer.edu/courses/30334/files/19668352?wrap=1 "cf_FIN534_WK_10_Assignment_Template.docx") [Download Week 10 Assignment template](https://canvas.strayer.edu/courses/30334/files/19668352/download?download_frd=1). Use it to answer the three problems below and show the calculations you used to arrive at the answers. You must show calculations to receive credit.

1. Salinas Corporation has a net income of $15 million per year on net sales of $90 million per year. It currently has no long-term debt but is considering a debt issue of $20 million. The interest rate on the debt would be 7%. Salinas currently faces an effective tax rate of 40%. What would be the annual interest tax shield to Salinas if it goes through with the debt issuance?
2. Carbon8 Corporation wants to raise $120 million in a seasoned equity offering, net of all fees. Carbon8 stock currently sells for $28.00 per share. The underwriters will require a fee of $1.25 per share and indicate that the issue must be underpriced by 7.5%. In addition to the underwriter's fee, the firm will incur $785,000 in legal, administrative, and other costs. How many shares must Carbon8 sell to raise the desired amount of capital?
3. FM Foods is evaluating its cost of capital. Use the following information provided on December 31, 2017, to estimate FM's after-tax cost of equity capital.
– Yield to maturity on long-term government bonds: 4.4%
– Yield to maturity on company long-term bonds: 6.3%
– Coupon rate on company long-term bonds: 7%
– Historical excess return on common stocks: 6.5%
– Company equity beta: 1.20
– Stock price: $40.00
– Number of shares outstanding (millions): 240
– Book value of equity (millions): $5,240
– Book value of interest-bearing debt (millions): $1,250
– Tax rate: 35.0%

This course requires the use of Strayer Writing Standards (SWS). The library is your home for SWS assistance, including citations and formatting. Please refer to the [Library site](https://library.strayer.edu/sws) for all support. Check with your professor for any additional instructions.

Week 10 Activity – Financial Calculations **Week 10 Activity – Financial CalculationsCriteriaRatingsPts** Provide the correct answer accompanied by calculations for problem one. **42.5 to >38.24 ptsExemplary** Provided the correct answer accompanied by calculations for problem one. **38.24 to >33.99 ptsCompetent** Provided the answer accompanied by calculations, but the answers and calculations are incomplete. **33.99 to >29.74 ptsNeeds Improvement** Provided the answer accompanied by calculations, but the answers and calculations are incorrect. **29.74 to >0 ptsUnacceptable** Did not provide the correct answer accompanied by calculations for problem one./ 42.5 ptsProvide the correct answer accompanied by calculations for problem two. **41.25 to >37.12 ptsExemplary** Provided the correct answer accompanied by calculations for problem two. **37.12 to >32.99 ptsCompetent** Provided the answer accompanied by calculations, but the answers and calculations are incomplete. **32.99 to >28.87 ptsNeeds Improvement** Provided the answer accompanied by calculations, but the answers and calculations are incorrect. **28.87 to >0 ptsUnacceptable** Did not provide the correct answer accompanied by calculations for problem two./ 41.25 ptsProvide the correct answer accompanied by calculations for problem three. **41.25 to >37.12 ptsExemplary** Provided the correct answer accompanied by calculations for problem three. **37.12 to >32.99 ptsCompetent** Provided the answer accompanied by calculations, but the answers and calculations are incomplete. **32.99 to >28.87 ptsNeeds Improvement** Provided the answer accompanied by calculations, but the answers and calculations are incorrect. **28.87 to >0 ptsUnacceptable** Did not provide the correct answer accompanied by calculations for problem three./ 41.25 ptsTotal Points: 0