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13) When calculating the Weighted Average Cost of Capital, the portion attributable to determine the cost of debt is a. Yield to Maturity X (1-tax

13) When calculating the Weighted Average Cost of Capital, the portion attributable to determine the cost of debt is

a. Yield to Maturity X (1-tax rate) X % of debt used by the company

b. Int Rate X (tax rate) X % of debt used by the company

c. % of debt divided by % of (debt + equity)

d. Dividends Per Share X (1 tax rate) X % of debt

15) Because the Dow only tracks 30 blue chip companies, the S&P 500 is

a. Not as reliable since it only tracks small companies

b. Standard and Poors gauge of the bond markets strength

c. a better barometer of the health of the economy since it tracks 500 large cap companies

d. The same as the NASDAQ, with a different owner

16) You are eying a stock that is projected to pay dividends in the 3 years of your holding period of $2.50, $2.95 and $3.20 per share. You expect the value at the end of year 3 to be $45 per share and your hurdle rate for investments is 12.25%. What is the max you should pay for the stock?

a. Forget it, the stock market is not dope.

b. The max value is $35.87

c. The market price is $38.65

d. The max value is $40.80

17) Lenders...

a. Get paid before shareholders

b. Get paid after shareholders

c. Have no preference about when they get paid

d. Get paid dividends

18) Dividend payments to shareholders are different from interest payments to lenders because:

a. Dividend payments are more costly to a corporation

b. The interest rate is lower than the cost of equity to corporations

c. Dividends must be paid every year

d. Interest payments, not dividends, are deductible when calculating income taxes

19) If the interest rate on debt is 5.40% and the cost of equity is 10.50% and the income tax rate is 21%, then the weighted average cost of capital to a corporation with 70% debt is:

a. 10.00%

b. 9.77%

c. 6.14%

d. 8.28%

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