Finance Last Test

The Green Balloon just paid its first annual dividend of $.87 a share. The firm plans to increase the dividend by 3.2 percent per year indefinitely. What is the firm's cost of equity if the current stock price is $4.75 a share?

22.10 percent

Electronic Products has 22,500 bonds outstanding that are currently quoted at 101.6. The bonds mature in 8 years and pay an annual coupon payment of $90. What is the firm's aftertax cost of debt if the applicable tax rate is 34 percent?

5.75 percent

The 7.5 percent preferred stock of Rock Bottom Floors is selling for $84 a share. What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100?

8.93 percent

The cost of preferred stock:

is equal to the stock's dividend yield.

Tennessee Valley Antiques would like to issue new equity shares if its cost of equity declines to 12.5 percent. The company pays a constant annual dividend of $2.10 per share. What does the market price of the stock need to be for the firm to issue the new shares?

$16.80

Musical Charts just paid an annual dividend of $1.84 per share. This dividend is expected to increase by 2.1 percent annually. Currently, the firm has a beta of 1.12 and a stock price of $31 a share. The risk-free rate is 4.3 percent and the market rate of return is 13.2 percent. What is the cost of equity capital for this firm?

11.21 percent

S&W has 21,000 shares of common stock outstanding at a price of $29 a share. It also has 2,000 shares of preferred stock outstanding at a price of $71 a share. The firm has 7 percent, 12-year bonds outstanding with a total market value of $386,000. The bonds are currently quoted at 100.6 percent of face and pay interest semiannually. What is the capital structure weight of the firm's preferred stock if the tax rate is 34 percent?

12.49 percent

The common stock of Contemporary Interiors has a beta of 1.13 and a standard deviation of 21.4 percent. The market rate of return is 12.7 percent and the risk-free rate is 4.1 percent. What is the cost of equity for this firm?

13.82 percent

K's Bridal Shoppe has 4,000 shares of common stock outstanding at a price of $13 a share. It also has 500 shares of preferred stock outstanding at a price of $22 a share. There are 50 bonds outstanding that have a semiannual coupon payment of $25. The bonds mature in four years, have a face value of $1,000, and sell at 98 percent of par. What is the capital structure weight of the common stock?

46.43 percent

Great Lakes Packing has two bond issues outstanding. The first issue has a coupon rate of8 percent, matures in 6 years, has a total face value of $5 million, and is quoted at 101.2 percent of face value. The second issue has a 7.5 percent coupon, matures in 13 years, has a total face value of $18 million, and is quoted at 99 percent of face value. Both bonds pay interest semiannually. What is the firm's weighted average aftertax cost of debt if the tax rate is 34 percent?

5.05 percent

Three years ago, the Morgan Co. issued 15-year, 6.5 percent semiannual coupon bonds at par. Today, the bonds are quoted at 100.6. What is this firm's pretax cost of debt?

6.43 percent

Which one of the following statements is correct? Assume the pretax cost of debt is less than the cost of equity.

A firm may change its capital structure if the government changes its tax policies.

Which one of the following will affect the capital structure weights used to compute a firm's weighted average cost of capital?

Increase in the market value of the firm's common stock

Trendsetters has a cost of equity of 14.6 percent. The market risk premium is 8.4 percent and the risk-free rate is 3.9 percent. The company is acquiring a competitor, which will increase the company's beta to 1.4. What effect, if any, will the acquisition have on the firm's cost of equity capital?

Increase of 1.06 percent

Which statement is true?

The cost of preferred stock is unaffected by the issuer's tax rate.

Which one of the following represents the minimum rate of return a firm must earn on its assets if it is to maintain the current value of its securities?

Weighted average cost of capital

Which one of the following is used as the pretax cost of debt?

Weighted average yield to maturity on the firm's outstanding debt

Lester lent money to The Corner Store by purchasing bonds issued by the store. The rate of return that he and the other lenders require is referred to as the:

cost of debt.

Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if the:

risk-free rate decreases.