When evaluating an average-risk project using IRR, a firm should use the WACC as the hurdle rate. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Elway Electronics has debt with a market value of $350,000, preferred stock with a market value of $150,000, and common stock with a market value of $450,000. If debt has a cost of 8%, preferred stock a cost of 10%, common stock a cost of 12%, and the firm has a tax rate of 30%, […]
Date: September 19th, 2020
For estimating NPV, the IRR is the appropriate discount rate to use for an average-risk project. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: For estimating NPV, the WACC is the appropriate discount rate to use for an average-risk project.
Date: September 19th, 2020
After satisfying obligations to creditors, the government, and preferred stockholders, any remaining earnings will most likely be allocated to ________. A) common shareholders as cash dividends B) common shareholders as stock dividends C) other firms requiring capital D) pay future preferred dividends ANSWER A
Date: September 19th, 2020
The operating cycle is the recurring transition of a firm’s working capital from cash to inventories and inventories to receivables and back to cash. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Two techniques for determining the cost of equity include using: 1. The Security Market Line, and 2. The Internal Rate of Return. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Two techniques for determining the cost of equity include using: 1. The Security Market Line, and 2. The Dividend […]
Date: September 19th, 2020
When determining the cost of bond financing a firm must determine the net proceeds from the sale of the bond less the flotation cost charged by the investment banker to estimate the yield-to-maturity. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Flotation costs reduce the cost of borrowing funds for the firms. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Flotation costs INCREASE the cost of borrowing funds for the firms.
Date: September 19th, 2020
It is easier to incorporate the impact of flotation costs on the cost of equity capital in using the dividend growth model rather than the Security Market Line. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Theo has been assigned the task of determining the cost of capital for his division of the firm. His first step is to determine the cost of debt. The firm has $1,000 par value bonds outstanding that have an annual coupon rate of 8.00% and make semiannual payments. These bonds have twenty-three years remaining to […]
Date: September 19th, 2020
