Question 1

2pts

When you use WACC as the discount rate for a specific project, you are assuming the:

Group of answer choices

project will be all-equity financed.

risk level of the project equals that of the overall firm.

project is unrelated to the firm's current operations.

project life is perpetual.

the project produces tax-free income.

Flag question: Question 2

Question 2

2pts

Marin's requires $289,000 to finance some new equipment. If the average flotation cost is 9.25 percent, how much money must the firm raise?

Group of answer choices

$318,457.30

$262,267.50

$315,732.50

$274,533.50

$289,000

Flag question: Question 3

Question 3

2pts

June Bugs has a debt-equity ratio of .45, a pre-tax cost of debt of 7.4 percent, and a cost of equity of 13.3 percent. Assume a 34 percent tax rate. What is the firm's WACC?

Group of answer choices

7.57%

9.95%

15.50%

13.29%

10.69%

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Question 4

2pts

A bond has a face value of $1,000, a 6 percent coupon paid semiannually, and 11 years to maturity. What is the pre-tax cost of debt if the bond currently sells for $1,023?

Group of answer choices

5.87%

6.14%

5.81%

5.72%

5.64%

Flag question: Question 5

Question 5

2pts

Reynelds' stock has a beta of 1.21 and an expected dividend next year of $1.60 a share. The firm increases the dividend by 3 percent annually. The risk-free rate of return is 2.5 percent and the market rate of return is 10.6 percent. What is the cost of equity?

Group of answer choices

12.30%

12.00%

15.07%

15.33%

11.98%

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Question 6

2pts

A stock just paid its annual dividend of $1.50 per share. This dividend increases at an annual rate of 2 percent. What is the cost of equity if the stock is currently selling for $56 a share?

Group of answer choices

4.68%

4.73%

4.97%

4.91%

4.81%

Flag question: Question 7

Question 7

2pts

Upton Umbrellas has a cost of equity of 12.1 percent, the YTM on the company's bonds is 6.2 percent, and the tax rate is 39 percent. The company's bonds sell for 103.7 percent of par. The debt has a book value of $423,000 and total assets have a book value of $957,000. If the market-to-book ratio is 2.89 times, what is the company's WACC?

Group of answer choices

9.96%

5.62%

10.26%

8.49%

8.35%

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Question 8

2pts

A project has an internal rate of return of 11.76 percent and a beta of 1.22. The market rate of return is 9.8 percent, the tax rate is 35 percent, and the risk-free rate is 3.4 percent. Should this project be accepted according to the CAPM if the firm is all-equity financed? Why or why not?

Group of answer choices

No; The CAPM rate is 11.21 percent.

No; The CAPM rate is 15.36 percent.

No; The CAPM rate is 11.96 percent.

Yes; The CAPM rate is 11.21 percent.

Yes; The CAPM rate is 15.36 percent

Flag question: Question 9

Question 9

2pts

An all-equity firm has a beta of .98. The firm is evaluating a project that will increase the output of the firm's existing product. The market risk premium is 7.3 percent and the risk-free rate is 3.4 percent. What discount rate should be assigned to this expansion project?

Group of answer choices

8.39%

7.22%

7.15%

10.55%

11.37%

Flag question: Question 10

Question 10

2pts

A DOL equal to 2 means that ___, while a DFL of 3 means that ___.

Group of answer choices

for every 1% increase in sales, EBIT will increase by 2%; for every 1% increase in EBIT, EBT will increase by 3%.

For every 10% increase in sales, EBIT will decrease by 20%; for every 10% increase in EBIT, EBT will decrease by 30%.

For every 1% increase in FC, EBIT will increase by 2%; for every 1% increase in sales, EBT will increase by 3%.

For every 10% decline in sales, EBT will decline by 20%; for every 10% decline in EBT, EBIT will increase by 20%.