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
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
