Watson’s Automotive has a $400,000 bond issue outstanding that is selling at 102 percent of face value. Watson’s also has 4,500 shares of preferred stock and 21,000 shares of common stock outstanding. The preferred stock has a market price of $44 a share compared to a price of $21 a share for the common stock. […]
Date: September 19th, 2020
Projects should be evaluated on the basis of accounting profits, as these profits actually cover the company’s obligations. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Preferred stock constitutes what percentage of the average firm’s capital structure? A) 50% B) 25% C) 5% D) 10% E) 75% ANSWER C
Date: September 19th, 2020
The marginal tax-rate structure of the income tax makes it possible to earn income that puts you in a higher bracket so that you wind up paying more additional taxes than the additional income you earned. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The Naugatuck Railway is currently all equity financed, but it is considering a leveraged capital structure. Selected financial information for Naugatuck is provided in the table below. Assume that all cash flows occur at the end of the year and we are currently at the beginning of a year. Assume that taxes are zero. Assume […]
Date: September 19th, 2020
The cost of preferred stock: A) is equal to the dividend yield on the stock. B) is equal to the yield to maturity. C) is highly dependent on the growth rate. D) varies directly with the stock’s price. E) is difficult to determine. ANSWER A
Date: September 19th, 2020
Discounting is the process of reducing future values to present values. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A due-on-sale clause requires the immediate return of earnest money at closing. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The present value of $500 received at the end of each of the next three years is $1,243 (assuming a 10% interest rate). Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The Pennsylvania Railroad (PRR) currently has a levered capital structure, but it is considering a proposal to issue new equity (@$30/share) and use the proceeds to retire its debt. Selected financial information for PRR is provided in the table below. Assume that PRR generates perpetual annual EBIT at a constant level. Assume that all cash […]
Date: September 19th, 2020
