The cost of equity and cost of debt of a company are 14 and 10 percent, respectively. The current tax rate is 30 percent. The capital structure of the company shows a debt and equity weight of 30 percent and 70 percent, respectively. Companys weighted average cost of capital is close to:

Select one:

A.

12.80 percent

B.

11.50 percent

C.

12.00 percent

D.

11.90 percent

A lemons problem is likely to arise when:

Select one:

A.

Communication from managers to investors is entirely credible.

B.

Investors have better information about the value of their business ideas than managers.

C.

Investors lack the ability to interpret business opportunities.

D.

Both B and C.

BHT Inc., has an 12 percent return on total assets of $500,000 and a net profit margin of 8 percent. What are its sales?

Select one:

A.

$500,000

B.

$750,000

C.

$480,000

D.

$370,000

Which of the following is correct?

Select one:

A.

A higher Z-score indicates more probability of bankruptcy.

B.

Sales and profitability is negatively associated with credit rating.

C.

Credit rating scores can determine the optimal debt equity ratio.

D.

Lenders can use credit scoring scores to determine borrowers capacity to pay.