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
Which of the following are tax-deductible expenses for corporations? A) Interest expenses B) Preferred stock dividends C) Common stock dividends D) All are tax-deductible for corporations. ANSWER Answer: A
Date: September 19th, 2020
Which of the following is the proper way to adjust the cost of debt to estimate the after-tax cost of debt? A) Rd ÷ (1 + Tc) B) Rd ÷ (1 – Tc) C) Rd × (1 – Tc) D) Rd × (1 + Tc) ANSWER Answer: C
Date: September 19th, 2020
When calculating the after-tax weighted average cost of capital (WACC), which of the following costs is adjusted for taxes in the equation? A) The before-tax cost of equity B) The before-tax cost of debt C) The before-tax cost of preferred stock D) The after-tax cost of debt ANSWER Answer: B Explanation: B) WACCadj […]
Date: September 19th, 2020
Revenue stability affects ________. A) dividend risk B) maturity risk C) business risk D) interest rate risk ANSWER C
Date: September 19th, 2020
Your firm has preferred stock outstanding that pays a current dividend of $2.00 per year and has a current price of $21.50. Currently, preferred stock makes up approximately 15% of your firm’s long-term financing. What is the market required rate of return on your firm’s preferred stock? A) 8.70% B) 9.00% C) 9.30% D) 15.00% […]
Date: September 19th, 2020
Pricing preferred stock is most similar to pricing ________. A) constant growth common stock B) a perpetuity C) a zero-coupon bond D) a three-month Treasury bill ANSWER Answer: B
Date: September 19th, 2020
In working capital management, risk is measured by the probability that a firm will be ________. A) unable to pay annual dividends to stockholders B) unable to pay its bills as they come due C) unable to repay its long-term obligations D) unable to earn profits from day-to-day operations ANSWER B
Date: September 19th, 2020
An investment banker’s fees are part of the ________ realized for issuing new debt or equity. A) flotation costs B) opportunity costs C) revenues D) benefits ANSWER Answer: A
Date: September 19th, 2020
