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
Phillip Enterprises Inc. needs to determine its cost of equity capital. Use the following information to estimate the firm’s cost of equity using both the security market line and the dividend growth model. The current market price of stock is $22.89, the risk-free rate is 4.00%, the required return on the market portfolio is 13.50%, […]
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
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%, […]
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.
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
