Finance multiple choice questions In Tutorial Library

This is Tutorial details page

TITLE: Finance multiple choice questions




Questions: 23
1. The riskiness of equity securities typically exceeds that of debt securities for firms.
 True False 
(Points: 1)   
  Calculation of company costs of capital should be conducted with market values whenever possible.
 True False 
(Points: 1)   
  As a firm changes to a higher debt ratio, debtholders are likely to demand higher rates of return.
 True False 
(Points: 1)   
  A firm's cost of capital can be used in valuation of every new project they encounter, regardless of its risk.
 True False 
(Points: 1)   
  Assuming a project has the same risk and financing as the firm, it will have a positive NPV if its rate of return is greater than the firm's WACC.
 True False 
(Points: 1)   
  A change in the company's capital structure will change the amount of taxes paid but will not change the WACC.
 True False 
(Points: 1)   
  What appears to be the targeted debt ratio of a firm that issues $15 million in bonds and $35 million in equity to finance its new capital projects?
 a. 15.00%
 b. 30.00%
 c. 35.00%
 d. 60.00%
(Points: 1)   
  What is the WACC for a firm with a 60/40 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be:
 a. 7.02%
 b. 9.12%
 c. 10.80%
 d. 13.80%
(Points: 1)   
  What is the pretax cost of debt for a firm in the 35% tax bracket that has a 9% after-tax cost of debt?
 a. 5.85%
 b. 12.15%
 c. 13.85%
 d. 25.71%
(Points: 1)   
  Company X has 2 million shares of common stock outstanding at a book value of $2 per share. The stock trades for $3.00 per share. It also has $2 million in face value of debt that trades at 90% of par. There are no bank notes outstanding. What is the firm's market value debt ratio for purposes of calculating WACC?
 a. 15.38%
 b. 23.08%
 c. 31.0%
 d. 33.3%
(Points: 1)   
  What is the after-tax cost of preferred stock that sells for $10 per share and offers a $1.20 dividend when the tax rate is 35%?
 a. 4.20%
 b. 7.80%
 c. 8.33%
 d. 12.00%
(Points: 1)   
  Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000 indefinitely, costs $10 million, and is riskier than the firm's average projects? The cost of capital for the firm's average projects is 12.5%.
 a. Yes, since NPV is positive.
 b. Yes, since a zero NPV indicates marginal acceptability.
 c. No, since NPV is zero.
 d. No, since NPV is negative.
(Points: 1)   
  Which of the following statements is incorrect?
 a. Retained earnings are part of common equity.
 b. Market values should be used in WACC calculations.
 c. Preferred equity has a separate component.
 d. Both interest on debt and dividends on equity are tax deductible
(Points: 1)   
  What would you estimate to be the required rate of return for equity investors if a stock sells for $40 and will pay a $4.40 dividend that is expected to grow at a constant rate of 5%?
 a. 7.6%
 b. 12.0%
 c. 12.6%
 d. 16.0%
(Points: 1)   
  What is the expected growth rate in dividends for a firm in which shareholders require an 18% rate of return and the dividend yield is 10%?
 a. 1.8%
 b. 5.2%
 c. 8.0%
 d. 28.0%
(Points: 1)   
  As debt is added to the capital structure, the:
 a. WACC will continually decline.
 b. WACC will continually increase.
 c. cost of debt can be expected to rise.
 d. WACC will be unaffected.
(Points: 1)   
  Calculate a firm's WACC given that the total value of the firm is $2,000,000, $600,000 of which is debt, the cost of debt and equity are 10% and 15% respectively, and the firm pays no taxes:
 a. 9.0%
 b. 11.5%
 c. 13.5%
 d. 14.4%
(Points: 1)   
  XYZ Company issues common stock that is expected to pay a dividend over the next year of $4 at a price of $25 per share. If its expected growth rate is 5%, what is XYZ's cost of common equity?
 a. 9.0%
 b. 11.0%
 c. 16.0%
 d. 21.0%
(Points: 1)   
  Find the required rate of return for equity investors of a firm with a beta of 1.3 when the risk free rate is 5%, the market risk premium is 5%, and the return on the market is 10%.
 a. 11.5%
 b. 13.0%
 c. 16.5%
 d. 18.0%
(Points: 1)   
  Calculate the beta of a firm's equity if the asset beta is 1.1, the debt beta is .05, and the firm has 30% debt in the capital structure.
 a. 10.85
 b. 10.55
 c. 1.085
 d. 1.55
 e. None of the above
(Points: 1)   
  VALUATION. For this and the next 2 questions: Dozier Corporation is a fast growing supplier of office products. Analysts project the following FCFs (in millions) during the next 3 years after which FCF is expected to grow at a constant rate of 5%. Dozier's cost of capital is 13%. Calculate the horizon value of the firm (i.e. HV3). 
Year 1 Year 2 Year 3
FCF -$20 $30 $40
 a. $525 million
 b. $500 million
 c. $323.08 million
 d. $397.37 million
 e. None of the above
(Points: 1)   
  Calculate the value of the firm today (i.e. the PV of both the FCFs and the horizon value).
 a. $525 million
 b. $500 million
 c. $323.08 million
 d. $397.37 million
 e. None of the above
(Points: 1)   
  Suppose the firm's market value of debt is $50 million. What is your estimate of the firm's value of equity?
 a. $330.54
 b. $347.37
 c. $447.36
 d. None of above

SOLUTION DESCRIPTION: Completed Solution is attached. Click on Buy button and then download file to get full solution.

1. Finance
2. Financial Management
3. Accounting
4. Corporate Finance

$4.00 USD

Press BUY button to download solution of this Question.



    No comment on this tutorial.