1.

Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adventure Outfitter if the corporation raises money by selling common stock?

Select one:

a. 18.33%

b. 17.00%

c. 27.00%

d. 18.89%

2.

All else equal, an increase in beta results in

Select one:

a. an increase in the cost of newly issued common stock .

b. an increase in the after-tax cost of debt.

c. an increase in the cost of common equity, whether or not the funds come from retained earnings or newly issued common stock.

d. an increase in the cost of retained earnings.

3.

Due to changes in regulatory requirements, the transactions costs associated with selling corporate securities increased by $1 per share. This change will

Select one:

a. have no effect on the cost of capital because transactions costs are expensed immediately.

b. cause the cost of capital to increase.

c. cause the cost of capital to decrease.

d. cause the cost of capital to decrease only if investors may be billed for part of the increase in transactions costs.

4.

JPR Company's preferred stock is currently selling for $28.00, and pays a perpetual annual dividend of $2.00 per share. Underwriters of a new issue of preferred stock would charge $3 per share in flotation costs. The firm's tax rate is 40%. Compute the cost of new preferred stock for JPR.

Select one:

a. 7.14%

b. 8.00%

c. 4.80%

d. 9.15%

5.

Phillips Enterprises Inc. is expected to pay a dividend of $2.60 next year. Dividends are expected to grow at a constant rate of 8% per year, and the stock price is currently $20.00. New stock can be sold at this price subject to flotation costs of 15%. The company's marginal tax rate is 35%. Compute the cost of internal equity (retained earnings) and the cost of external equity (new common stock), respectively.

Select one:

a. 23.00%, 25.48%

b. 0, 21.00%

c. 8.00%, 23.29%

d. 21.00%, 23.29%

6.

A firm's weighted average cost of capital is determined using all of the following inputs EXCEPT

Select one:

a. the probability distribution of expected returns.

b. the amount of capital necessary to make the investment.

c. the firm's after tax cost of debt.

d. the firm's capital structure.