1.

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%

2.

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.

3.

Which of the following should NOT be considered when calculating a firm's WACC?

Select one:

a. cost of carrying inventory

b. after-tax cost of bonds

c. cost of preferred stock

d. cost of common stock

4.

All the following variables are used in computing the cost of debt EXCEPT

Select one:

a. maturity value of the debt.

b. risk-free rate.

c. market price of the debt.

d. number of years to maturity.

5.

A significant advantage of the internal rate of return is that it

Select one:

a. provides a means to choose between mutually exclusive projects.

b. avoids the size disparity problem.

c. considers all of a project's cash flows and their timing.

d. provides the most realistic reinvestment assumption