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Question 1 (4 points) What is the price of a 10 year $1000 Par Value Bond if the coupon rate is 10% (pays $100 a year if dividends paid annually) with 8 years to go to maturity. Interest rates (expected rate of return) is 8%? a. $980.34 b. $1114.93 c. $1435.37 d. $1000.00 Save answer

b. $1114.93

Question 2 (2 points) The last paid dividend is $2 for a share of common stock that is currently selling for $20. What is the cost of retained earnings if the long-term growth rate in dividends for the firm is expected to be 8%? a. 10.8% b. 12.8% c. 14.8% d. 16.8% e. 18.8% Save answer

e. 18.8%

Question 3 (4 points) New Your Key is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equilty is 13.75%. If the company is in the 40% tax bracked, what is New York Key's weighted marginal cost of capital? a. 7.5% b. 9.2% c. c.10.4% d. 13.8% Save answer

c.10.4%

Question 4 (4 points) Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Metals Corp.'s after-tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Metals Copr's weighted average cost of capital? a. 12.78% b. 10.84% c. 8.32% d. 6.56% Save answer

a. 12.78%

Question 5 (2 points) Roto Roofing Corp. just paid a dividend of $1.85. This dividend is expected to grow at a constant annual ratae of 3% per year. Roto Roofing's common stock is currently selling for $12.50. The firm can sell new stock at this price subject to floatation costs of 15%. What will the cost of the newly issured stock be? a. 17.8% b. 16.2% c. 18.5% d. 19.7% e. 20.9% Save answer

e. 20.9%

Question 6 (2 points) Pony Corp. is undertaking a capital budgeting analysis. The firm's beta is 1.5. The rate on 30-year U.S. Treasury bonds is 5%, and the return on the S & P 500 index is 12 %. What is the cost of Pony's retained earnings? a. 13.3% b. 15.5% c. 17.7% d. 19.9% Save answer

b. 15.5%

Question 7 (2 points) Seven Eleven Stores is planning an expansion project that it desires to finance with newly issued preferred stock. The firm has an outstanding issue of preferred stock that pays a dividend of $4.25 per share, which is trading for $65 a share. The investment bankers have advised Seven Eleven that flatation costs will be 8% per share. What will be the cost of the newly issued preferred shares? a. 6.5% b. 7.1% c. 8.3% d. 9.7% Save answer

b. 7.1%

Question 8 (1 point) Business risk refers to which of the following? a. The potential variabililty in a firm's operating profit that results from the nature of the firm's business endeavors. b. The usage of newly issued common stock ln a frim's captial structure. c. The risk that investors incur when they purchase common or preferred stock. d. One firm doing business with another frim that is an an entirely different industry. Save answer

a. The potential variabililty in a firm's operating profit that results from the nature of the firm's business endeavors.

Question 9 (1 point) Which of the following should be added to a firm's NOPAT in the calculation of the income portion for determining free cash flow? a. Interest expense b. Depreciation c. Capital costs d. Net working capital Save answer

b. Depreciation

Question 10 (1 point) Capital market instruments include: a. negotiable certificates of deposit. b. corporate equities c. preferred stock d. both B and C e. all of the above. Save answer

d. both B and C

Question 11 (1 point) Which of the following refers to the institutions and procedures that provide for transactions in short-term debt instruments? a. Capital market b. Commercial banks c. Money Market d. Stock market Save answer

c. Money Market

Question 12 (1 point) The break-even model enables the manager of the firm to: a. calculate the minimum price of common stock for certain situations. b. set appropriate equilibrium thresholds. c. determine the quantity of output that must be sold to cover all operating costs. d. determine the optimal amount of debt financing to use. Save answer

c. determine the quantity of output that must be sold to cover all operating costs

Question 13 (1 point) The degree of operating leverage is defined as: a. % change in EBIT/% change in variable cost b. % change in EBIT/% change in sales c. % change in sales/% change in EBIT d. % change in EBIT/% change in contribution margin Save answer

b. % change in EBIT/% change in sales

Question 14 (1 point) Financial leverage measures the percentage change in _________to the percentage change in ________. a. EBIT; sales b. sales;earnings per share c. earnings per share;EBIT d. sales; EBIT Save answer

c. earnings per share;EBIT

Question 15 (1 point) Which of the following is inconsistent with an optimal capital structure policy? a. Lower the blended cost of debt and equity. b. Maximize a firm's common stock price. c. Minimize the cost of capital. d. Maximize EPS. Save answer

d. Maximize EPS.

Question 16 (1 point) According to the residual theory of dividends, dividends are considered a residual after: a. Investment financing needs have been met. b. preferred stock is issued. c. EPS is allocated. d. retained earnings are financed. Save answer

a. Investment financing needs have been met.

Question 17 (1 point) Dividends tend to be more stable than: a. cash flow b. earnings c. preferred stock d. both B and C Save answer

b. earnings

Question 18 (1 point) The only definite result from a stock dividend or a stock split is: a. an increase in the P/E ratio. b. an increase in the common stock's market value. c. an increase in the number of shares outstanding. d. cannot be determined from the above. Save answer

c. an increase in the number of shares outstanding

Question 19 (2 points) Use the following information to answser the following question: Quick Corp. makes its purchases under terms of 2/10 net 30. If Quick Corp. forgoes the discount and pays for its purchases according to the terms of its trade credit, what is Quick's effective cost of using this source of credit? a. 26.67% b. 31.48% c. 36.73% d. 51.21% Save answer

c. 36.73%

Question 20 (1 point) Which of the following statements is the least consistent with modern cash management theory? a. If a company keeps too much cash on hand, a corporate raider could use the excess cash as part of the financing of a hostile take-over. b. Keep more cssh than is needed increases the company's ability to weather a short-term recession. c. The more cash a company keeps, the less creative its management appears to stock market analysts. d. The more cash a company keeps, the better off it is at all times. Save answer

a. If a company keeps too much cash on hand, a corporate raider could use the excess cash as part of the financing of a hostile take-over

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