FIN/571 Wk 2 – Practice: Wk 2 Practice Questions

$14.99

FIN/571 Wk 2 – Practice: Wk 2 Practice Questions

Description

FIN/571 Wk 2 – Practice: Wk 2 Practice Questions

FIN/571 Wk 2 – Practice: Wk 2 Practice Questions

  1. 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 $15.8 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?

Multiple Choice

  • $1,392,000
  • $1,488,000
  • $2,360,000
  • $2,480,000

 

 

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?

Multiple Choice

  • 7.39%
  • 9.57%
  • 10.35%
  • 11.20%

 

 

 

If the tax rate is 21%, what is the cost of preferred stock that sells for $10 per share and pays a $1.20 dividend?

Multiple Choice

  • 4.20%
  • 7.80%
  • 8.33%
  • 12.00%

 

 

For a company that pays no corporate taxes, its WACC will be equal to:

Multiple Choice

  • the expected return on its assets.
  • the expected return on its debt.
  • the total value of its assets.
  • the expected return on its equity.

 

If a firm has twice as much equity as debt in its capital structure, then the firm is financed with:

Multiple Choice

  • 75.0% debt.
  • 66.7% equity.
  • 40.0% debt.
  • 33.3% equity.

 

 

What proportion of a firm is equity financed if the WACC is 14%, the before-tax cost of debt is 10.77%, the tax rate is 21%, and the required return on equity is 18%?

Multiple Choice

  • 54.00%
  • 57.86%
  • 70.26%
  • 77.78%

 

 

What dividend is paid on preferred stock if investors require a 9% rate of return and the stock has a market value of $54 per share and a book value of $50 per share?

Multiple Choice

  • $2.92
  • $4.50
  • $4.68
  • $4.86

 

 

What is the WACC for a firm with 40% debt, 20% preferred stock, and 40% equity if their respective costs are 6% after tax, 12%, and 18%? The firm’s tax rate is 21%.

Multiple Choice

  • 9.48%
  • 11.16%
  • 12.00%
  • 15.60%

 

 

A firm is financed 55% by common stock, 10% by preferred stock and 35% by debt. The required return is 15% on the common, 10% on the preferred, and 8% on the debt. If the tax rate is 21% what is the WACC?

Multiple Choice

  • 10.72%
  • 11.46%
  • 11.70%
  • 12.05%

 

 

What would you estimate as the cost of equity if a stock sells for $40, pays a $4.25 dividend, and is expected to grow at a constant rate of 5%?

Multiple Choice

  • 17.46%
  • 14.52%
  • 12.69%
  • 15.63%

 

 

A private placement avoids which one of the following costs?

Multiple Choice

  • Depression in the stock price
  • Administration costs
  • Registration with the SEC
  • Legal costs

 

 

An investor can earn 20% on underpriced IPOs, but will lose 10% on overpriced IPOs. If he is awarded $2,000 worth of shares in an overpriced IPO, how much of the underpriced issue must he be awarded in order to gain $500 total?

Multiple Choice

  • $1,500
  • $2,500
  • $3,500
  • $10,000

 

 

Assume the issuer incurs $2 million in other expenses to sell 4 million shares at $55 each to an underwriter and the underwriter sells the shares at $59 each. By the end of the first day’s trading, the issuing company’s stock price had risen to $68. What is the cost of underpricing?

Multiple Choice

  • $20 million
  • $32 million
  • $36 million
  • $40 million

 

 

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.

Multiple Choice

  • $7.5 million
  • $30.0 million
  • $33.3 million
  • $37.5 million

 

 

What direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $30 each to an underwriter and the underwriter sells the shares at $32 each?

Multiple Choice

  • 7.29%
  • 7.88%
  • 8.65%
  • 9.02%

 

 

Which one of these terms applies to a public company offering new shares to the general public?

Multiple Choice

  • Rights offer
  • Initial public offering
  • Venture capital offer
  • General cash offer

 

 

If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:

Multiple Choice

  • $1.
  • $2.
  • $38.
  • $40.

 

 

Private placement of debt securities occurs more frequently in:

Multiple Choice

  • smaller-sized firms.
  • larger-sized firms.
  • firms that are using venture capitalists.
  • combination with convertible bonds.

 

 

Money that is offered to finance a new business is known as:

Multiple Choice

  • a general cash offer.
  • venture capital.
  • a private placement.
  • a rights issue.

 

 

Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:

Multiple Choice

  • acts as a signal to venture capitalists.
  • repays debt held by the venture capitalist.
  • retains a portion of the firm’s equity.
  • provides incentive to expend effort.

V090620

FIN/571 Wk 2 – Practice: Wk 2 Practice Questions