FIN 571 Week 2 Quiz
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What is a firm's weighted-average cost of capital for a firm that is financed 45% by debt? The debt has a 10% required return and the equity has a 17% required return. The tax rate is 21%.
The company cost of capital is the return that is expected on a portfolio of the company's:
Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its debt has a pretax interest rate of 12%. Plasti-tech's common stock trades at $15.00 per share and its most recent dividend was $1.00. Future dividends are expected grow by 4%. If the tax rate is 21%, what is Plasti-tech's WACC?
A project requires an investment of $10 million and offers an annual after-tax cash flow of $1,250,000 indefinitely. If the firm's WACC is 12.5% and the project is riskier than the firm’s average projects, should it be accepted?
If a company's WACC is less than the required return on equity, then the firm:
The weighted-average cost of capital for a firm with a 65/35 debt/equity split, 8% pre-tax cost of debt, 15% cost of equity, and a 21% tax rate is:
Increasing debt financing will do all of the following except:
What return on equity do investors expect for a firm with a $55 share price, an expected dividend of $4.60, a beta of 0.9, and a constant growth rate of 3.5%?
XYZ Company issues common stock at a price of $25 a share. The firm expects to pay a dividend of $2.20 a share next year. If the dividend is expected to grow at 2.5% annually, what is XYZ's cost of common equity?
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 21%, there is $10 million in common stock requiring a 12% return, and $6 million in bonds requiring an 8% return?
Issue costs for equity are higher than those for debt for all of the following reasons except:
What was the market price of a share of stock before a rights issue, if one share of new stock could be purchased at $100 for every four shares that were previously owned? The stock price after the successful rights issue was $200.
Stock underwriters are:
What direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each?
One reason for an underwriters' syndication is to:
If a new stock offering were overpriced and could be sold, then the:
An investor exercises the right to buy one additional share at $20 for every five shares held. How much should each share be worth after the rights issue if they previously sold for $50 each?
A firm has just issued $250 million of equity which caused its stock price to drop by 3%. Calculate the loss in value of the firm's equity given that its market value of equity was $1 billion before the new issue.
A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own. What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?
Companies offering smaller security issues may prefer to issue them through a:
An investment offers to pay $100 a year forever starting at the end of year 6. If the interest rate is 8%, what is the investment’s value today?
The present value of a perpetuity can be determined by:
If the effective annual rate of interest is known to be 16.08% on a debt that has quarterly payments, what is the annual percentage rate?
Suppose you take out a 30-year mortgage for $100,000 with annual payments. The interest rate on the mortgage is 8%. When you have paid off half the mortgage, so that the value of the remaining payments is reduced to $50,000, how many more payments need to be made?
If the five-year discount factor is d, what is the present value of $1 received in five years’ time?
A credit card account that charges interest at the rate of 1.25% per month would have an annually compounded rate of _____ and an APR of ____.
One way to increase the NPV of a project is to decrease the:
If a project costs $72,000 and returns $18,500 per year for 5 years, what is its IRR?
A project's opportunity cost of capital is:
The profitability index selects projects based on the:
The modified internal rate of return can be used to correct for:
You can continue to use your less efficient machine at a cost of $8,000 annually. Alternatively, you can purchase a more efficient machine for $12,000 plus $5,000 annual maintenance. If the new machine lasts 5 years and the cost of capital is 15%, you should:
A project can have as many different internal rates of return as it has:
Capital budgeting projects typically assume that all cash flows transpire at the end of the year. The reason for this is that:
Assume your firm has an unused machine that originally cost $75,000, has a book value of $20,000, and a market value of $25,000. Ignoring taxes, what is the opportunity cost of using this machine?
You are considering the introduction of a new product that will require an investment in new machinery. Which one of these will lower the net present value of that project?
Which one of the following would not be expected to affect the decision of whether to undertake an investment?
The recovery of an additional investment in working capital is likely to:
A new inventory system will immediately reduce inventory levels by $100,000. If this reduction is permanent and the cost of capital is 13%, how does the net working capital change affect company value?
When the real rate of interest is less than the nominal rate of interest, then: