FIN 3403017 Principles of Financial Mgmt (Spring 2015) Chapter 14 Quiz

| June 1, 2016

Review Test Submission: Chapter 14 Quiz

Course Principles of Financial Mgmt [Spring 2015]

Test Chapter 14 Quiz

Attempt Score 10 out of 10 points

• Question 1

1 out of 1 points

The Basket Weavers Company has 100,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 7.5 percent. The company also has 1 million shares of 10.5 percent preferred stock outstanding and 5 million shares of common stock outstanding. The preferred stock sells for $56 per share. The common stock has a beta of 1.2 and sells for $38 a share. The U.S. Treasury bill is yielding 3 percent and the return on the market is 12 percent. The corporate tax rate is 34 percent. What is Basket Weaver’s weighted average cost of capital?

• Question 2

1 out of 1 points

The weighted average of a firm’s cost of equity and aftertax cost of debt is called the:

• Question 3

1 out of 1 points

Ronald’s Fast Food just paid their annual dividend of $1.05 a share. The stock has a market price of $26 and a beta of 1.15. The return on the U.S. Treasury bill is 3 percent and the market risk premium is 7 percent. What is the cost of equity?

• Question 4

1 out of 1 points

Cameron Industries is expected to pay an annual dividend of $1.30 a share next year. The market price of the stock is $24.80 and the growth rate is 3 percent. What is the firm’s cost of equity?

• Question 5

1 out of 1 points

Which of the following statements are correct concerning the security market line (SML) approach to determining the cost of equity for a firm?

I. The SML approach considers the amount of unsystematic risk associated with a firm.

II. The SML approach can be applied to more firms than the dividend growth model can.

III. The SML approach considers only future information.

IV. The SML approach assumes the reward-to-risk ratio is constant.

• Question 6

1 out of 1 points

The cost of equity for a firm is:

• Question 7

1 out of 1 points

The pre-tax cost of debt for a firm:

• Question 8

1 out of 1 points

The capital structure weights used in computing the weighted average cost of capital:

• Question 9

1 out of 1 points

Ellie’s Boutique has a bond issue outstanding that matures in fourteen years. The bonds pay interest semi-annually. Currently, the bonds are quoted at 98 percent of face value and carry an 8 percent coupon. The firm’s tax rate is 35 percent. What is the firm’s aftertax cost of debt?

• Question 10

1 out of 1 points

The cost of preferred stock is computed the same as the:

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