14.

According to Miller and Modiglianis proposition, which assumptions are necessary for capital structure decisions to be irrelevant to the value of the firm?

Select one:

a. The assumption that investors never sell or buy shares or bonds

b. Dividends, projects, and new capital do not matter in reality

c. The assumption that a company always maximises the value of the firm

d. Taxes, information costs, transaction costs and investment policy are irrelevant

e. That debt and equity have the same costs; therefore, it does not matter which is used to fund the firm

16.

An investor thinks companies with strong operating cash flows, low capital and working capital requirements are better investments. What is their rationale?

Select one:

a. A company that produces strong operating cash flows with relatively little requirements for capital and working capital spending produces proportionally more free cash flows.

b. The investor believes a firm can operate efficiently with minimal capital spending

c. Strong operating cash flow is more important than capital spending and working capital

d. The investor believes that working capital is a waste of money.

e. The investor must have learned about the shareholder value revolution and decided cash is king.

19.

Bits n pieces Inc. is in the process of evaluating an international shipping warehouse that spans several acres. Obviously, they need a discount rate for their NPV calculation and will use the company's WACC. Use the information below to calculate the weighted average cost of capital (WACC):

The company has 1,000,000 shares on issue.

The shares trade at $17.90 and have a Beta of 1.20.

The expected return on the market is 6% and the risk-free rate is 3%.

The company has 20,000 bonds on issue.

The bonds trade at $102 and have a yield to maturity of 5%.

The corporate taxation rate is 27.5%.

Select one:

a. 7.23%

b. 5.075%

c. 12.85%

d. 6.66%

e. 6.29%