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
The operating cycle is the length of time a firm’s cash is tied up between payment for production inputs and receipt of payment from the sale of the resulting finished product. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
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
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
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
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
