dExpected inflation incrases stock increase this e The notation costs associated with issuing preferred S0 When there is a cros over point brtweven the NPV's and IRR's from 2 different projects happens when The size of the investment cost in each project is not the same , The timing of cash flow of each is not the same. b e. The discount rate or d a and b only e a b and c 31. In forecasting cash flow, the most challenge input is determining the initial investment outlay a. b the revenues c. the variable costs d the fixed costs a of the above 32. Based on the information below, what is the firm's optimal capital structure? a b. c. d. Debt-40%, Equity-60%. EPS-$2.95: Stock price-S2650, Debt-50%, Equity-50% i EPS-S3 05, Stock price-52890. Debt-er. Equity 40%. EPS-$3.18, Stock price-S3120. Debt-80%, Equity-20%. EPS-S3 42. Stock price-S30.40. e. Debt-7%. Equity-30%; EPS-$3.31; Stock price-S30.00. 33. Which of the following does NOT normally influence a firm's dividend policy decision? a The firm's ability to accelerate or delay investment projects without adverse consequences b. A strong preference by most of its shareholders for current cash income versus potential future capital gains. c Constraints imposed by the firm's bond indenture. d. The fact that the firm rents its office rather than owned The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains. 34. Firms generally choose to finance temporary curren matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital. t assets with short-term debt because b. c short-term interest rates have traditionally been more stable than long-term interest rates. a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short ternm d. the yield curve is normally downward sloping short-term debt has a higher cost than equity capital. e. 35 Orient Airlines' common stock currently sells for S33, and its 8% convertible bond (issued at par, or $1,000) sell for $850. Each debenture can be converted into 25 shares of common stock at any time. What is the conversion value of the bond? (Hint: Use-your-brain to think) $707.33 b. $744.56 c $783.75 d. $825.00 e. $866.25 a. 36. The "preferred" feature of preferred stock means that it normally will provide a higher a. b. expected return than will common stock. True False 37. What is the cost of capital in dollar terms in year 2
