Please help with the following 10 questions<\/p>
<\/p>
Question 1(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> What is the Annual pre-tax cash flow and Minimum pre-tax return XYZ, Inc.:<\/p> Project cost = $1000<\/p> Financed by:<\/p> $600 debt at 9% interest (pre-tax)<\/p> $400 equity with a 15% return requirement<\/p> Question 1 options:<\/p> <\/p> a)<\/p> $114; 11.4%<\/p> <\/p> b)<\/p> $116; 12.6%<\/p> <\/p> c)<\/p> $118; 13.4%<\/p> <\/p> d)<\/p> $113; 12.4%<\/p> Question 2(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?<\/p> Question 2 options:<\/p> <\/p> a)<\/p> Accounts payable.<\/p> <\/p> b)<\/p> Common stock \"raised\" by reinvesting earnings.<\/p> <\/p> c)<\/p> Common stock raised by new issues.<\/p> <\/p> d)<\/p> Preferred stock.<\/p> <\/p> e)<\/p> Long-term debt.<\/p> Question 3(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> If a company's target capital structure is 50% debt and 50% common equity, which would be a correct statement?<\/p> Question 3 options:<\/p> <\/p> a)<\/p> The cost of reinvested earnings typically exceeds the cost of new common stock.<\/p> <\/p> b)<\/p> The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet.<\/p> <\/p> c)<\/p> The WACC is calculated on a before-tax basis.<\/p> <\/p> d)<\/p> The cost of equity is always equal to or greater than the cost of debt.<\/p> Question 4(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> If a firm's marginal tax rate is increased, this would, other things held constant, lower the cost of debt used to calculate its WACC.<\/p> Question 4 options:<\/p> a) Trueb) False<\/p> Question 5(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> Firm value is calculated by adding expected cash flow to the firm's cost of capital under each capital structure.<\/p> Question 5 options:<\/p> a) Trueb) False<\/p> Question 6(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> Which of the following statements is false?<\/p> Question 6 options:<\/p> <\/p> a)<\/p> Other factors being constant, higher fixed costs mean a higher operating leverage.<\/p> <\/p> b)<\/p> Corporate bonds and notes provide no voting rights.<\/p> <\/p> c)<\/p> The cost of debt is the minimum acceptable rate of return to a firm on a project of average risk.<\/p> <\/p> d)<\/p> A firm that increases operating leverage for a given quantity of output, increases itsbusiness risk<\/p> Question 7(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> If you assume that a project being considered has normal cash flows, with one outflow followed by a series of inflows, which statement would be correct?<\/p> Question 7 options:<\/p> <\/p> a)<\/p> The NPV of a relatively low-risk project should be found using relatively high cost of capital.<\/p> <\/p> b)<\/p> A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the cost of capital.<\/p> <\/p> c)<\/p> If a project's NPV is less than zero, then its IRR must be less than the cost of capital.<\/p> <\/p> d)<\/p> The lower the cost of capital used to calculate a project's NPV, the lower the calculated NPV will be.<\/p> Question 8(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> Assuming that NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life.<\/p> Question 8 options:<\/p> a) Trueb) False<\/p> Question 9(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> Which of the following is not potentially used in the weighted average cost of capital equation?<\/p> Question 9 options:<\/p> <\/p> a)<\/p> cost of retained earnings<\/p> <\/p> b)<\/p> weight of debt<\/p> <\/p> c)<\/p> average corporate income tax rate<\/p> <\/p> d)<\/p> marginal tax rate<\/p> Question 10(3 points)<\/strong><\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> <\/p> Because the cost of capital is used to evaluate future investment proposals, it is important to include flotation costs because such costs would be incurred if a firm were to raise new capital to fund proposed projects.<\/p> Question 10 options:<\/p> a) Trueb) False<\/p>",
"transcribed_text": "",
"related_book": {
"title": "Accounting Information Systems The Crossroads of Accounting & IT",
"isbn": "132991322, 978-0132991322",
"edition": "2nd Edition",
"authors": "Donna Kay, Ali Ovlia",
"cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/405.jpg",
"uri": "\/textbooks\/accounting-information-systems-the-crossroads-of-accounting-it-2nd-edition-405",
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},
"free_related_book": {
"isbn": "0195669843",
"uri": "\/textbooks\/the-oxford-companion-to-economics-in-india-har-cdr-edition-978-0195669848-283506",
"name": "The Oxford Companion To Economics In India",
"edition": "Har\/cdr Edition"
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"question_posted": "2024-06-05 16:10:04",
"see_more_questions_link": "\/study-help\/questions\/business-corporate-finance-2020-July-01",
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