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QUESTION 12 Union Pacific Railroad reported EBIT of $500 million in 1993 and Return on Capital of 30% in that year. The corporate tax rate was 36%. It reported depreciation of $900 million in that year, and capital spending was $932 million. Both depreciation and capital expenditure are expected to grow at the same rate as the earnings. Working capital requirements are negligible. The firm is in steady state. The firm's market value of outstanding debt is $4 billion, rated AA (carrying a yield to maturity of 6%). The beta of the stock is 1.15, and there were 200 million shares outstanding (trading at $60 per share). The treasury bond rate is 7% and equity risk premium is 5.5%. What is the value of the firm at the end of 1993, using the FCFF approach. A. $5,201 million B. $3,730 million C. $4,150 million D. $4,821 million E. $4,570 million QUESTION 13 You are examining the financial viability of investing in Alpha Inc, an oil company. It had estimated reserves of 6000 million barrels of oil and the average cost of developing these reserves was estimated to be S12 a barrel in present value dollars. The price of oil was per barrel, and the production cost, taxes and royalties were estimated at $8 per barrel. The development lag is approximately 3 years. The average relinquishment life of the reserves is 16 years. If Gulf were to develop these reserves, it was expected to have revenues each year of 10% of the value of the developed reserves. The bond rate at the time of the analysis was 9.00%. The variance in oil prices is 0.03. What is the value of Zebra Ine using the option pricing model? (Note: work with 4 decimals) Ndi)=0.8087 N(42)-0.5716 A $9,841 million B. 59,321 million C. $10,123 million D.$9,912 million E. $9.586 million QUESTION 14 1 pc Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answers Close Window esc # $ % A & QUESTION 12 Union Pacific Railroad reported EBIT of $500 million in 1993 and Return on Capital of 30% in that year. The corporate tax rate was 36%. It reported depreciation of $900 million in that year, and capital spending was $932 million. Both depreciation and capital expenditure are expected to grow at the same rate as the earnings. Working capital requirements are negligible. The firm is in steady state. The firm's market value of outstanding debt is $4 billion, rated AA (carrying a yield to maturity of 6%). The beta of the stock is 1.15, and there were 200 million shares outstanding (trading at $60 per share). The treasury bond rate is 7% and equity risk premium is 5.5%. What is the value of the firm at the end of 1993, using the FCFF approach. A. $5,201 million B. $3,730 million C. $4,150 million D. $4,821 million E. $4,570 million QUESTION 13 You are examining the financial viability of investing in Alpha Inc, an oil company. It had estimated reserves of 6000 million barrels of oil and the average cost of developing these reserves was estimated to be S12 a barrel in present value dollars. The price of oil was per barrel, and the production cost, taxes and royalties were estimated at $8 per barrel. The development lag is approximately 3 years. The average relinquishment life of the reserves is 16 years. If Gulf were to develop these reserves, it was expected to have revenues each year of 10% of the value of the developed reserves. The bond rate at the time of the analysis was 9.00%. The variance in oil prices is 0.03. What is the value of Zebra Ine using the option pricing model? (Note: work with 4 decimals) Ndi)=0.8087 N(42)-0.5716 A $9,841 million B. 59,321 million C. $10,123 million D.$9,912 million E. $9.586 million QUESTION 14 1 pc Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answers Close Window esc # $ % A &

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