1. Banketon Corporation forecasts that if all of ite existing financial policies are followed, its proposed capital budget would be so large that it would have to Lose new Con stock. Since now stock has & higher coat than retained earnings, Bankaton would like to avoid leuing new stock Which of the following actions would REDUCE its need to issue new common stock? .. Increase the dividend payout ratio for the upcoming year. b. Increase the percentage of debt in the target capital structure. e. Increase the proposed capital budget. d. Reduce the amount of short-term bank debt in order to inerense the current ratio. .. Reduce the percentage of debt in the target capital structure. 2 Schalheis Sisters Inc. has alway paid out all of its earning as dividends, hence the firm has no retained earnings. This situation is expected to persist in the future. The company uses the CAPM to calculate its coat of equity, ita target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE Its HACCP 1. The market risk premium declines. b. The flotation coats associated with issuing new common stock increase c. The company's beta Increases d. Expected Inflation increases .. The flotation conta associated with issuing preferred atock increase. 3. Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A'a cost of capital is 10.01. Division B's cost is 14.00, and the corporate (composito) WACC is 12.04. All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division 3. Which of the following projects should the firm accept? a. A Division B project with a 13+ return. b. A Division 3 project with a 12 return. C. A Division A project with an 119 return. d. A Division A project with a 9 return. e. A Division B project with an 11% return. 4. It a typical 0.8. company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely a. become riskier over time, but its intrinsic value will be maximized b. become less risky over time, and this will maximize ita intrinsic value e. accept too many low-risk projects and too few high-risk projects. d. become more risky and also have an increasing HACC. Its intrinsic value will not be maximized. e. continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital. MacBook Air