QUESTION 10

A company finances its operations with 60 percent debt. Its net income is $120 million. The required rate of return on companys debt is 8% and the cost of equity is 12%. The companys tax rate is 40 percent. What is the companys WACC?

A.

7.68%

B.

8.4%

C.

9.16%

D.

13%

E.

1.8%

QUESTION 13

If a firm decreases its dividend payment to shareholders, then investors understand that

A.

The firm has many profitable investment projects and needs to have increased retained earnings

B.

The firm has many investment projects and needs to have increased retained earnings

C.

The firm would be suitable for retail investors and not for institutional investors

D.

The firm generated lower earnings

E.

Dividends are irrelevant to the firms value

QUESTION 14

For a corporation the Inventory period is 93 days, and the Receivables period is 57 days. Then, the operating cycle is

A.

36 days

B.

150 days

C.

1.63 days

D.

163 days

E.

168 days