Multiple choice questions:

1- ABC company is fully financed by equity, if the cost of debt is 8%, and cost of common stock is 18%, then the WACC of ABC company is:

a. 8%

b. 18%

c. 13%

d. 16%

2- If the EBT is $1000, tax rate is 40%, and number of shares is 100 shares, then the EPS is equal to:

a. $6

b. $8

c. $10

d. $5

3- If cost of debts is 8%, debt weight is 40%, and cost of equity is 14%, then WACC is equal to:

a. 12%

b. 12.6%

c. 10.6%

d. 14.6%

4- If the par value of a bond is $1000, coupon rate is 10%,and market interest rate is 12%, the bond is selling at:

a. Discount

b. Premium

c. Par value

d. Market value 3

5- XYZ co., issued a bond that earns $50 annually, if the market interest rate is 10% and date to maturity is 2 years, the fair value of the bond is equal to:

a. $1000

b. $1050

c. $950

d. No one of the above.

6- If EBIT is $400, interest expenses is $150, tax rate 40%, and number of shares I 100 shares, the EPS is :

a. $2.5

b. $1.5

c. $1

d. $1.75

7- The increase of debt ratio in the capital structure will cause:

a. Increase in EPS

b. Decrease in EPS

c. Increase in risk

d. Both a and c.

8- The increase of debt ratio in the capital structure will cause:

a. Increase in value of the firm

b. Decrease in the value of the firm

c. There is no clear impact on value of the firm

9- A bond has the following features: par value is $1500, coupon rate 10%, market interest rate 10%. The fair value of the bond is equal to:

a. Par value

b. Higher than par value

c. Lower than par value.

10- Zero coupon bond is like to corporate bond and earns :

a. Fixed interest rate. 4

b. Floating interest rate.

c. Inverse interest rate.

d. No one of the above.

11- Zero coupon bond has

a. An impact on EPS

b. No impact on EPS

c. No one of the above.

12- Zero coupon bond is selling with

a. Discount on its par value

b. Premium on its par value

c. Par value

13-Both corporate bonds and preferred stock are:

a. Fixed income securities.

b. Equity securities.

c. Debt securities.

d. No one of the above.

14-Financial break-even point is the expected EBIT that cause:

a. EBT for financing alternatives are equal.

b. EBIT for financing alternatives are equal.

c. EPS for financing alternatives are equal.

d. No one of the above.

15- If par value of a bond is $1200, market value $1000, coupon rate is 12%, and date to maturity is 4 years. Then current yield and yield to maturity are:

a. 14.4% and 15.6%

b. 17.6% and 14.4%

c. 15% and 14.4%

d. 14.4% and 17.6%