FIN 4223 Test Two

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called?

Cost of Equity

The weighted average cost of capital for a wholesaler:

Is the return investors require on the total assets of the firm

The cost of preferred stock is computed the same as the

Rate of return on a perpetuity

The present value of the interest tax shield is expressed as:

Tc x D

AA Tours has EBIT below the break-even EPS. Which is correct if the firm wishes to improve EPS?

The firm should reduce its expenses

The interest tax shield is a key reason why:

The net cost of debt to a firm is generally less than the cost of equity

Which one of the following is the legal proceeding under which an insolvent firm can be reorganized?

bankruptcy

Butter & Jelly reduced its taxes last year by $350 by increasing its interest expense by $1,000. Which of the following terms is used to describe this tax savings?

interest tax shield

Bankruptcy

is a legal proceeding

The aftertax cost of debt:

is highly dependent upon the firm's tax rate