The following market information was gathered for the ACME corporation. The common stock is selling for $40.00 per share and there are 100,000 shares outstanding. Retained earnings equal $400,000, preferred stock has 1,000 shares outstanding selling at $120.00 per share, and 500 outstanding long-term bonds are selling for $1,035.00 each. For purposes of estimating the […]
The following information comes from the Galaxy Construction balance sheet. The value of common stock is $10,000, retained earnings equals $7,000, total common equity equals $17,000, preferred stock has a value of $3,000, and long-term debt totals $15,000. If the cost of debt is 8.00%, preferred stock has a cost of 10.00%, common stock has […]
A typical involves a campaign among competing groups for the right to cast shareholders’ votes on their behalf in elections for a focal firm’s board directors. a. proxy contest b. shareholder-initiated proposal c. initiation procedure d. takeover contest ANSWER A
To find the after-tax cost of debt for a corporation, one needs to multiply the before-tax cost of debt by (1 + Tc), where Tc = the corporate tax rate. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: To find the after-tax cost of debt for a corporation, one […]
Define flotation costs and explain how they are used when estimating a firm’s yield-to-maturity. What will be an ideal response? ANSWER Answer: Flotation costs are the costs incurred to sell a security. They are the fees charged by the investment banker to facilitate the issuance and sale of the bond. To determine the […]
Scrutiny by the media and analysts has at least two important implications for a firm, but does NOT include: a. information they generate reduces information asymmetry. b. their oversight of a firm’s management serves shareholders’ interest. c. they accurately forecast the returns on individual firms based on private information they generate. ANSWER C
The cost of retained earnings is the cost of issuing new common stock without flotation costs. Indicate whether the statement is true or false. ANSWER Answer: TRUE
The cost of retained earnings ________. A) is the loss of the dividend option for the owners B) is the cost of issuing new common stock without the flotation costs C) is the appropriate cost of capital for the shareholders D) All of the above ANSWER Answer: D Explanation: D) Retained earnings are […]
The cost of debt financing results from ________. A) the decreased probability of bankruptcy caused by debt obligations B) the risk–return trade-off associated with ownership of a firm C) the costs associated with lenders having less information about a firm’s prospects than investors and managers D) the agency costs of the lenders’ monitoring and controlling […]
The cash conversion cycle of a firm is the length of time from the beginning of the production process to the collection of cash from the sale of finished products. Indicate whether the statement is true or false ANSWER FALSE
