QUESTION 1 The preferred

QUESTION 1 The preferred

QUESTION 1 The preferred stock of Nadine Fashions pays an annual dividend of $2.25 a share and sells for $38.75 a share. The tax rate is 32 percent. What is the firm’s cost of preferred stock? 7.26% 9.5% 8.39% 5.81% 10.14% 10 pointsQUESTION 2 The cost of preferred stock: decreases when a firm’s tax rate increases. is constant over time. is unaffected by changes in the price of the stock. is equal to the stock’s dividend yield. increases as the price of the stock increases. 5 pointsQUESTION 3 All else constant, an increase in a firm’s cost of debt: could be caused by an increase in the firm’s tax rate. will result in an increase in the firm’s cost of capital. will lower the firm’s weighted average cost of capital. will lower the firm’s cost of equity. will increase the firm’s capital structure weight of debt. 10 pointsQUESTION 4 What is the after tax cost of debt on a $500000 loan given a 10% interest rate and 35% tax bracket? 6.5% 8.15% 7.46% 9.22% 10 pointsQUESTION 5 A firm has a cost of equity of 10 percent, a cost of preferred of 9 percent, and an aftertax cost of debt of 5 percent. Given this, which one of the following will decrease the firm’s weighted average cost of capital? redeeming the bond issue decreasing the debt-equity ratio issuing new equity securities increasing the systematic risk level of the firm issuing new debt 5 pointsQUESTION 6 The common stock of Pittsburgh Steel Products has a beta of 1.5 and a standard deviation of 14.25 percent. The market rate of return is 10 percent and the risk-free rate is 3.5 percent. What is the cost of equity for Pittsburgh Steel Products? 9.66% 13.25% 12.84% 10.71% 11.55% 10 pointsQUESTION 7 Brown Street Grocers has a cost of equity of 11.75 percent, a pre-tax cost of debt of 5.75 percent, and a tax rate of 34 percent. What is the firm’s weighted average cost of capital if the debt-equity ratio is 0.3? 9.91 percent 8.84 percent 7.65 percent 10.78 percent 9.03 percent 10 pointsQUESTION 8 A company you are researching has common stock with a beta of 1.4. Currently, Treasury bills yield 3.6%, and the market portfolio offers an expected return of 13.8%. The company finances 45% of its assets with debt that has a yield to maturity of 6%. The firm also uses preferred stock to finance 15% of its assets. The preferred stock has a current price of $12 per share and pays a level $2 dividend. The firm is in the 34% tax bracket. What is the weighted average cost of capital? 10.25% 13.28% 9.98% 11.43% 10 pointsQUESTION 9 Calculate the weighted average cost of capital for the following firm: it has $600000 in debt, $400000 in common stock and $200000 in preferred stock. It has a 4% cost of debt, 14% cost of common stock, 12% cost of preferred stock and a 34% tax rate. 8.64% 5.14% 9.3% 7.99% 10 pointsQUESTION 10 The cost of capital for a project depends primarily on the: firm’s overall source of funds. source of the funds used for the specific project. current tax rate. use of the funds. firm’s historical rates of return. 5 pointsQUESTION 11 The weighted average cost of capital is defined as the weighted average of a firm’s: return on its investments. cost of equity and its aftertax cost of debt. pretax cost of debt and equity securities. bond coupon rates. dividend and capital gains yields. 5 pointsQUESTION 12 Last week, Lester’s Electronics paid an annual dividend of $2.25 on its common stock. The company has a longstanding policy of increasing its dividend by 3.5 percent annually. This policy is expected to continue. What is the firm’s cost of equity if the stock is currently selling for $40.95 a share? 11.28% 9.19% 8% 10.55% 7.43%

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