CorpFin Final

A firm has a project with an NPV of −$52 million. If it has access to risk-free government financing that can create a permanent annual tax shield of $5 million, what is the APV of the project assuming the risk-free interest rate is 6 percent? A. −$52 million B. $5 million C. $31 million D. $83 million

C

Anubis Limited is expected to pay a dividend of $2 per share at the end of year 1(Div1), and the dividends are expected to grow at a constant rate of 4 percent forever. If the current price of the stock is $20 per share, calculate the expected return or the cost of equity capital for the firm. A) 10 percent B) 4 percent C) 14 percent D) 20 percent

C

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Accounts receivable = 200. Calculate the cash ratio. (Assume that the firm has no marketable securities.) A. 1.5 B. 2.0 C. 0.4 D. 1.2

C

Based on the following data for year 1:Profits after taxes = $20 million; Depreciation = $6 million; Interest expense = $4 million; Investment in fixed assets = $12 million; Investment in working capital = $4 million. The corporate tax rate = 25 percent. Calculate the free cash flow (FCF) for year 1. A. $4 million B. $6 million C. $13 million D. $8 million

C

Efficiency ratios indicate whether the firm is using its assets productively; whether the firm is liquid; whether the firm is profitable; how highly the firm is valued by investors A. II only B. III only C. I only D. III and IV only

C

Given the following data for Project M calculate the NPV of the project. C0, C1, C2 Cash flow in real terms: −200, 150, 120 Real discount rate = 5% Nominal discount rate = 10% A: $45.21 B: $70.00 C: $51.70 D: $35.54

C

If a bond is junior or subordinated, it A: has been issued because the company is in default. B: is secondary to equity. C: must give preference to senior creditors in the event of default. D: has a higher priority status than specified creditors.

C

In cash budgeting, which of the following is a cash outflow? A. Issuance of equity B. Collections on accounts receivable C. Payments on accounts payable D. Sales

C

In the AHP case, expenses above what amount needed to be approved by the CEO? A. 50,000 B. 5,000 C. 500 D. 15,000

C

MM Proposition I with corporate taxes states that: I) capital structure can affect firm value by an amount that is equal to the present value of the interest tax shield; II) by raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase its total value; III) firm value is maximized by using an all-equity capital structure A. I only B. III only C. I and II D. II only

C

One calculates the after-tax weighted average cost of capital (WACC) using which of the following formulas? A: WACC = (rD) (D/V) + (rE) (E/V), where V = D + E. B: WACC = (rD) (D/E) + (rE) (E/D). C: WACC = (rD) (1 − TC) (D/V) + (rE) (E/V), where V = D + E. D: WACC = (rD) (1 − TC) (D/V) + (rE) (1 − TC) (E/V), where V = D + E.

C

Project M requires an initial investment of $25 million. The project is expected to generate $2.25 million in after-tax cash flow each year forever. If the weighted average cost of capital (WACC) is 9 percent, calculate the NPV of the project. A. +2.5 million B. +2.1 million C. Zero D. −2.5 million

C

The following are characteristics of preferred stock except it A. pays fixed dividends. B. pays fixed dividends and can demand payments of cumulative dividends. C. has voting rights. D. can demand payments of cumulative dividends.

C

The growth rate in dividends is a function of two ratios. They are A) ROA and ROE. B) dividend yield and growth rate in stock price. C) ROE and the plowback ratio. D) book value per share and EPS.

C

The opportunity cost of capital for a risky project is: A) the expected rate of return on a government security having the same maturity as the project. B) the expected rate of return on a well-diversified portfolio of common stocks. C) the expected rate of return on a security of similar risk as the project. D) the expected rate of return on a typical bond portfolio.

C

The recovery rate on defaulting debt is the highest for the following type of debt: A. senior subordinated bonds. B. junior subordinated bonds. C. bank debt. D. senior secured bonds.

C

The value of a corporate bond can be thought of as A. bond value without default - value of call. B. bond value without default + value of put. C. bond value without default - value of put. D. bond value without default + value of a stock.

C

What is the "career limiting" error that Joanna makes in the Nike Case? 9) C A) Uses a market risk premium based on the arithmetic instead of geometric mean. B) Uses Northpoint's cost of capital, instead of Nike's, when valuing the cash flows. C) Uses book value for the calculation of Nike's equity in her WACC calculation. D) Applies the wrong risk-free rate in her CAPM calculation.

C

A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of $120,000 per year for two years (i.e., cash flows will occur at t = 1 and t = 2). The corporate tax rate is 21 percent. The assets will depreciate using the MACRS 3-year schedule: (t = 1, 33%); (t = 2: 45%); (t = 3: 15%); (t = 4: 7%). The company's tax situation is such that it can use all applicable tax shields. The opportunity cost of capital is 12 percent. Assume that the asset can sell for book value at the end of the project. Calculate the NPV of the project (answer in whole numbers). A: $5,721 B: $22,463 C: $19,315 D: $22,735

D

Acacia Industries has just now paid a dividend of $2.83 per share (Div0); its dividends are expected to grow at a constant rate of 6 percent per year forever. If the required rate of return on the stock is 16 percent, what is the current value of the stock, after paying the dividend? A: $56 B: $70 C: $48 D: $30

D

Assume the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10. Calculate the cash coverage ratio. A. 4.7 B. 5.0 C. 14.0 D. 7.0

D

Consider the procedure such as the one announced by Washington Federal last week whereby the firm states a series of prices at which it is prepared to repurchase stock. Shareholders then submit offers indicating how many shares they wish to sell and at which price. The firm then calculates the lowest price at which it is able to buy the desired number of shares. This procedure is known as a(n) A: green mail. B: tender offer. C: open market repurchase. D: Dutch auction.

D

For a levered firm, A. as EBIT increases, EPS decreases by the same percentage. B. as EBIT increases, EPS decreases by a larger percentage. C. as earnings before interest and taxes (EBIT) increases, earnings per share (EPS) increases by the same percentage. D. as EBIT increases, EPS increases by a larger percentage.

D

GameStop's stock is selling for $100 per share today. It is expected that-at the end of one year-it will pay a dividend of $6 per share and then be sold for $114 per share. Calculate the expected rate of return for the shareholders. A: 25 percent B: 15 percent C: 10 percent D: 20 percent

D

Given are the following data for Outsource Company: PV (of UFCFs for years 1-3) = $35 million; PV (horizon value) = $65 million. Suppose that the market value of the debt = $30 million. Calculate the total market value of equity of the firm. A. $35 million B. $100 million C. $30 million D. $70 million

D

If a firm permanently borrows $100 million at an interest rate of 8 percent, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 21 percent.) A. $5.60 million B. $26.67 million C. $8.00 million D. $21.00 million

D

If firm U is unlevered and firm L is levered, then which of the following is true? I) VU = EU. II) VL = EL + DL. III) VL = EU + DL. A. I, II, and III B. III only C. I only D. I and II only

D

In general, which of the following statements is (are) true? I) Bonds issued in the United States are registered. II) Bonds issued in the United States are bearer bonds. III) Eurobonds are normally issued in a major currency, e.g., $US, euro, or yen. IV) Eurobonds are normally issued in the local currency. A. III only B. II only C. II and IV only D. I and III only

D

In the Nike Cost of Capital Case, which of the following is a true statement. A: Joanna correctly calculated the WACC for Nike using market values. B: At the time of the Nike Case, the yield curve was inverted, leading to long-term bond yields lower than shorter-term bond yields and complicating the analysis. C: Based on information in the case, Nike's quoted bonds were trading at a premium to par. D: Based on a corrected calculation of WACC, the implied share price from Kimi Ford's DCF analysis would be greater than her initial estimate.

D

PCG Corporation has 1,000,000 shares outstanding at $30/share. If the firm wishes to raise $13.5 million at a subscription price of $27/share, calculate the value of a right (assuming a European-style rights issue). A: $1.50/right B: $4/right C: $3/right D: $2/right

D

The asset beta of a levered firm is 1.1. The beta of debt is 0.3. If the debt equity ratio is 0.5, what is the equity beta? (Assume no taxes.) A. 0.30 B. 0.15 C. 1.10 D. 1.50

D

The cash cycle occurs in the following sequence: A. cash, raw materials, receivables, finished goods, and cash. B. cash, receivables, finished goods, raw materials, and cash. C. cash, finished goods, receivables, raw materials, and cash. D. cash, raw materials, finished goods, receivables, and cash.

D

The market value of TCG Limited's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8 percent. If the Treasury bill rate is 5 percent, what is the company's cost of capital? (Assume no taxes.) A: 15.0 percent B: 14.6 percent C: 7.0 percent D: 13.0 percent

D

The pecking order theory of capital structure implies that: I) high-risk firms will end up borrowing more; II) firms prefer internal finance; III) firms prefer debt to equity when external financing is required A. II only B. I only C. III only D. II and III only

D

When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used), which costs should be used to help determine if the added project should be undertaken? A: Average costs B: Sunk costs C: Allocated overhead costs D: Incremental costs

D

Which of the following assets is tangible? A. Microsoft's technical expertise B. Apple Inc.'s trademark C. Hewlett-Packard's most recent printer patent D. ExxonMobil's corporate headquarters building

D

You are given the following data for year 1: Revenues = 100; Fixed costs = 30; Total variable costs = 50; Depreciation = $10; Tax rate = 21 percent. Calculate the after-tax cash flow for the project for year 1. A. $13.10 B. $7.30 C. $10.00 D. $17.90

D

Calculate the increase or decrease in working capital if accounts receivables increase by $5,000, inventories decrease by $1,000 and accounts payables increase by $6,000 and state whether that is a source or use of cash.

Decreases by $2,000 (source of cash)

You are considering the purchase of one of two machines. Machine X has a life of 2 years. Machine X costs $100 initially and then $50 per year in maintenance. Machine Y has a life of 3 years. Machine Y has an initial cost of $80 and it requires $40 maintenance per year. Both machines must be replaced at the end of their lives. Assume the discount rate is 12% and there are no taxes. What are the relative EAC's and which is the better machine for the firm to purchase?

EACX = -$109.17 and EACY =-$73.31 so Machine

True or False: In the epilogue to the Rosetta Stone case, the CEO of Rosetta Stone expresses regret that the IPO traded up 39% on the first day and that the company "clearly left money on the table." He then makes a series of suggestions on how the traditional IPO process could be improved.

False

Ben's Banana Stand Corp. just paid a dividend of $2.50 per share; its dividends are expected to grow at a constant rate of 5% per year forever. If the required rate of return on the stock is 15%, what is the current value of the stock, after paying the dividend?

$26.25

Devin's Donut Empire, Inc. expects to pay a dividend of $3 per share at the end of year 1, $4 per share at the end of year 2, and then be sold for $40 at the end of year 2. If the required rate of return on the stock is 12%, what is the current value of the stock?

$37.76

What is the present value of the following cash flows at a discount rate of 8 percent? Year 1: $100,000 Year 2: $200,000 Year 3: $250,000

$462,518

Renovating the Sci Li requires an initial investment of $100,000 of material assets and expects to produce a cash flow before taxes of $75,000 for three years (i.e. cash flows will occur at year 1, year 2, and year 3). The corporate tax rate is 35%. The assets will depreciate using the MACRS 3-year schedule which calls for 33% depreciation in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The opportunity cost of capital is 10%. Assume the asset sells for book value at the end of the project. Calculate the NPV.

$53,954.17

Dunder Mifflin forecasted a $10 dividend next year which represented 100% of its earnings. This would have provided investors with a 12% expected return. Instead, CFO David Wallace argues that they should plowback 40% of earnings at the firm's current return on equity of 20%. What is the PVGO?

$66.67

D&B Sweets is a European chocolate company that needs $1.2 billion of new equity. The market price of shares is $24.73. D&B Sweets decides to raise additional funds by offering the right to buy 3 new shares for 20 at $13.93 per share. With 100% subscription, what is the value of each right?

$9.39 per right

Market Value: NWC = $200 LTA = $2,800 D = $500 E = $2,500 According to MM's Proposition 1 corrected for taxes, what will be the change in company value if Devin & Ben Co. issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 35% marginal corporate tax rate.

-$70

The PCG Corporation has 1,000,000 shares outstanding at $30/share. If the firm wishes to raise $13.5 million at a subscription price of $27/share, calculate the value of a right (assuming a European rights issue structure).

1,000,000 x 30 = 30,000,000 13,500,000 / 27 = 500,000 new shares $43,500,000 / 1,500,000 = $29 $29 - $27 = $2 per right

The beta of an all-equity firm is 0.9. Suppose the firm changes its capital structure to 50 percent debt and 50 percent equity using 6 percent debt financing. What is the equity beta of the levered firm? The beta of debt is 0.1. (Assume no taxes.)

1.7

At the end of the first year of a project, net working capital stood at $100,000. In the second year of a project, inventories increased by $12,000, accounts payable increased by $2,000, and accounts receivable remained the same. During the third year of the project, inventories increased $14,000, accounts receivable decreased by $4,000, and accounts payables increased by $6,000. Calculate the net working capital at the end of the third year.

114,000

BOLD Industries is financed entirely by common stock that is priced to offer a 20 percent expected return. If the company repurchases 50 percent of the common stock and substitutes an equal value of debt yielding 8 percent, what is the expected return on the common stock after refinancing? (Ignore taxes.)

32%

A $1,000 face value bond can be exchanged any time for 25 shares of stock. Then the conversion price is A. $40. B. $25. C. $100. D. $975.

A

A firm has a debt-to-equity ratio of 0.50. Its cost of debt is 10 percent. Its overall cost of capital is 14 percent. What is its cost of equity if there are no taxes? A. 16 percent B. 15 percent C. 18 percent D. 13 percent

A

A puttable provision in a bond allows the A. holder to redeem the bond at par before maturity. B. issuer to extend the maturity of the bond. C. holder to extend the maturity of the bond. D. issuer to call the bond at par on the coupon payment date.

A

An equity issue sold to the firm's existing stockholders is called a A: rights offer. B: private placement. C: general cash offer. D: discriminatory-price auction.

A

Commercial banks and several other financial institutions are not permitted to invest in bonds unless they are investment grade. What is the definition of an investment-grade bond? A. One with a rating of Baa or better. B. One with a triple-A rating. C. One with a rating of B or better. D. One with a rating of C or better.

A

Firms can pay out cash to their shareholders in the following way(s): I) dividends; II) share repurchases; III) interest payments A: I and II only B: II only C: III only D: I only

A

Firms can repurchase shares in the following ways: I) open market repurchase; II) tender offer; III) Dutch auction; IV) direct negotiation with a major shareholder A: I, II, III, and IV B: III only C: I only D: II only

A

For the case of an electric car project, the following costs should be treated as incremental costs when deciding whether to go ahead with the project except A: interest payments on debt incurred to finance the project. B: the value of tools that will be transferred to the project from the company's existing plants instead of being sold. C: the consequent reduction in sales of the company's existing gasoline models (i.e., incidental effects). D: the expenditure on new plants and equipment

A

Generally, convertible bonds are issued by A. smaller and more speculative firms. B. the U.S. government. C. mature and profitable firms. D. very large firms.

A

Generally, firms engage in stock repurchases during I) boom times as firms accumulate excess cash; II) recessions due to low stock prices; III) times when competitors' stock prices are dropping A: I only B: II and III only C: III only D: II only

A

Given corporate taxes, why does adding debt to the capital structure increase firm value? I) Extra cash flow goes to the firm's investors rather than the tax authorities. II) Earnings before interest and taxes are fully taxed at the corporate rate. III) Personal tax rates are the same as marginal corporate tax rates. A. I only B. III only C. II and III only D. II only

A

If the sign of the cash flows for a project changes two times, then the project likely has A: two IRRs. B: one IRR. C: four IRRs. D: three IRRs.

A

Monte Carlo simulation involves the following steps: I) Step 1: Modeling the project; II) Step 2: Specifying probabilities; III) Step 3: Simulating cash flows; IV) Step 4: Calculating present value A. I, II, III, and IV B. I and II only C. I, II, and III only D. II, III, and IV only

A

Net working capital is best represented as A: short-term assets and short-term liabilities. B: long-term assets and long-term liabilities. C: short-term assets only. D: long-term assets and short-term assets.

A

One should consider net working capital (NWC) in project cash flows because A) typically firms must invest cash in short-term assets to produce finished goods. B) NWC represents sunk costs. C) firms need positive NPV projects for investment. D) inclusion of NWC typically increases calculated NPV.

A

Suppose that a project has a depreciable investment of $600,000 and falls under the following MACRS year 5 class depreciation schedule: year 1: 20 percent; year 2: 32 percent; year 3: 19.2 percent; year 4: 11.5 percent; year 5: 11.5 percent; and year 6: 5.8 percent. Calculate depreciation for year 2. A: $192,000 B: $120,000 C: $96,000 D: $115,200

A

Suppose that there are no taxes, transactions costs, or other market imperfections. Which of the following actions is most likely to make shareholders better off? A: Eliminate negative-NPV projects. B: Increase dividends. C: Announce that dividends will not change for at least three years. D: Reduce share repurchases.

A

The cost of capital is the same as the cost of equity for firms that are financed A: entirely by equity. B: entirely by debt. C: by both debt and equity. D: by 50 percent equity and 50 percent debt.

A

The following situations typically require that the financial manager value an entire business: I) If firm A is about make a takeover offer for firm B, then A's financial managers have to decide how much the combined business A + B is worth under A's management. II) If firm C is considering the sale of one of its divisions or a business line, it has to decide what the division or the business line is worth in order to negotiate with potential buyers. III) When a firm goes public, the investment bank must evaluate how much the firm is worth in order to set the price. A. I, II, and III B. I only C. I and II only D. III only

A

The opportunity cost of capital for a risky project is: A: the expected rate of return on a security of similar risk as the project. B: the expected rate of return on a government security having the same maturity as the project. C: the expected rate of return on a typical bond portfolio. D: the expected rate of return on a well-diversified portfolio of common stocks.

A

The underwriter's spread is the highest for A: IPOs. B: convertible bonds. C: straight bonds. D: seasoned equity offerings.

A

Two mutually exclusive projects have the following positive NPVs and project lives. Project NPV Life Project A $ 5,000 3 Years Project B $ 6,500 5 Years If the cost of capital were 15 percent, which project would you accept? A: Project A, because it has higher EAC B: Project B, because it has higher NPV C: Project A, because its NPV can be earned more quickly D: Project B, because it has higher EAC

A

Using a company's cost of capital to evaluate a project is I) always correct; II) always incorrect; III) correct for projects that have average risk compared to the firm's other assets A: III only B: I only C: I and III only D: II only

A

What is the likely impact on a typical individual investor if a firm undertakes a stock repurchase instead of a cash dividend? A) Lower taxes, if capital gains tax rates are less than dividend tax rates B) Higher taxes, if capital gains tax rates are less than dividend tax rates C) Lower share price D) A tax-free transaction

A

What is the most important difference between a corporate bond and an equivalent U.S. Treasury bond? A. In the case of corporate bonds, firms have sometimes defaulted, whereas the U.S. government has not. B. The beta of corporate bonds is usually less than the beta of a U.S. Treasury bond. C. Corporate cash flow is relatively smooth, whereas U.S. government revenue is more variable. D. Corporate bonds are traded on the floor of the New York Stock Exchange, and Treasury bonds trade in the over-the-counter market.

A

When a firm improves (lowers) its days of inventory, it generally A. releases cash locked up in inventory. B. cannot reduce its inventories. C. requires additional cash investment in inventory. D. does not alter its cash position.

A

You are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $50 initially and then $70 per year in maintenance costs. Machine B has an initial cost of $90. It requires $40 in maintenance costs for each year of its three-year life. Either machine must be replaced at the end of its life. Which is the better (i.e., lower cost) machine for the firm? The discount rate is 15 percent and the tax rate is zero

Machine B (EAC = 79.42)

Acacia Corporation is expected to pay a dividend of $5 per share next year. Its expected EPS is $8.33. Assuming a cost of equity of 15% and dividend growth of 10%, what is the present value of growth opportunities embedded in Acacia's share price.

PVGO = 100 - 55.56 = 44.44

TA Co. is financed entirely by common stock that is priced to offer an 18 percent expected rate of return. The stock price is $50 and the earnings per share are $9. The company wishes to repurchase 50 percent of the stock and substitute an equal value of debt yielding 7 percent. Suppose that before refinancing, an investor owned 100 shares of TA Co. common stock. What should they do if they wish to ensure that the risk and expected return on their investment continue to mirror the portfolio of the company?

Sell 50 shares and purchase $2,500 of 7% bonds

Capital structure is irrelevant if I) capital markets are efficient; II) each investor can borrow/lend on the same terms as the firm; III) there are no tax benefits to debt A. III only B. I, II, and III C. I only D. II only

B

Generally, initial public offerings (IPOs) are A: correctly priced. B: underpriced. C: there is no general trend. D: overpriced.

B

Mirion, Inc., has a debt-equity ratio of 50 percent, with no preferred stock. However, Mirion now plans to raise enough preferred stock to retire half of its outstanding common stock. Its common equity is currently valued at $7 million. Which of the following choices displays Mirion's market value capital structure, in market values (i.e., V = D + P + E), after the preferred stock issue? A. 10.5[V] = 7 [E] + 3.5[P] + 0[D]. B. 14[V] = 7[E] + 3.5[P] + 3.5[D]. C. 10.5[V] = 3.5[E] + 3.5[P] + 3.5[D]. D. 14[V] = 3.5[E] + 3.5[P] + 7[D].

B

One should consider net working capital (NWC) in project cash flows because A: NWC represents sunk costs. B: typically firms must invest cash in short-term assets to produce finished goods. C: inclusion of NWC typically increases calculated NPV. D: firms need positive NPV projects for investment.

B

The equity book value of MB Corporation is $5 million, and the market value of its common stock is $20 million. The market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8 percent. If the Treasury bond rate is 5 percent, what is the company's cost of capital? (Assume no taxes.) A) 10% B) 13% C) 14.25% D) 15%

B

The following functions, provided by financial intermediaries, enable the smooth functioning of the economy: I) processing of payments; II) borrowing and lending; III) pooling risks A: I only B: I, II, and III C: III only D: I and II only

B

The following is the general formula for calculating the "Ending accounts receivable (AR)": A. Ending (AR) = beginning (AR) − sales + collections. B. Ending (AR) = beginning (AR) + sales − collections. C. Ending (AR) = beginning (AR) − sales − collections. D. Ending (AR) = beginning (AR) + sales + collections.

B

The holders of ZZZ Corporation's bonds with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25. What is the conversion value of the bond? A. $965 B. $875 C. $1,000 D. $1,200

B

What is the net present value of the following cash flow sequence at a discount rate of 11 percent? t = 0 -120,000, t = 1, 300,000, t = 2 -100,000 A: $231,432.51 B: $69,108.03 C: $80,000.00 D: $88,000.00

B

What signal is sent to the market when a firm decides to issue new stock to raise capital? A. Bond markets are overpriced. B. Stock price is too high. C. Bond markets are underpriced. D. Stock price is too low.

B

When financial distress is a possibility, the value of a levered firm is a function of: I) value of the firm if all-equity-financed; II) present value of tax shield; III) present value of costs of financial distress; IV) present value of omitted dividend payments A. I + II B. I + II − III C. I only D. I + II - III − IV

B

Which of the following are true? I) Firms have long-run target dividend payout ratios. II) Dividend changes follow shifts in long-term, sustainable earnings. III) Managers are reluctant to make dividend changes that might have to be reversed. A: III only B: I, II, and III C: II only D: I only

B

Which of the following statements regarding the net present value rule and the rate of return rule is false? A: Accept a project if NPV is positive. B: Accept a project if NPV > cost of investment. C: Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market. D: Reject a project if NPV is negative

B

A corporate bond matures in one year. The bond promises a $50 coupon and a principal payment of $1,000 at maturity. If an investor buys the bond for $938.10, calculate the promised yield on the bond. A. 5.33 percent B. 5 percent C. 11.93 percent D. 6.60 percent

C

A firm can achieve a higher growth rate (within limits) without raising external capital by A. increasing its current ratio. B. increasing the proportion of debt in its capital structure. C. increasing its plowback ratio. D. decreasing its inventory turnover.

C

A firm finances itself with 30 percent debt, 60 percent common equity, and 10 percent preferred stock. The before-tax cost of debt is 5 percent, the firm's cost of common equity is 15 percent, and that of preferred stock is 10 percent. The marginal tax rate is 30 percent. What is the firm's weighted average cost of capital? (Assume that the dividends on preferred stock are not tax-deductible) A. 12.50 percent B. 10.75 percent C. 11.05 percent D. 10.05 percent

C

In October 2020, you purchase a $1000 bond which pays a 6% coupon every year. If the bond matures in 2025, and the YTM is 2%, what is the value of the bond?

$1,188.54

A Wall Street Journal quotation for a company has the following values: Div: $1.12, P/E: 18.3, Close: $37.22. Calculate the approximate dividend payout ratio for the company.

$1.12 = DIV $37.22 / 18.3x = $2.03 EPS $1.12 / 2.03 = 55%

Arrange the following assets in decreasing order of liquidity, i.e., the most liquid should be listed first. I) equipment and machinery; II) inventories; III) accounts receivable; IV) marketable securities A. III, IV, II, and I B. IV, III, II, and I C. I, II, III, and IV D. II, III, IV, and I

B

BMG Industries is considering an extension to an existing product line. The following costs should be treated as incremental costs when deciding whether to go ahead with the project except A) the consequent reduction in sales of the company's existing products. B) interest payments on debt incurred to finance the project. C) the value of equipment that will be transferred to the project from the company's existing plants instead of being sold. D) the expenditure on new equipment.

B