22.
The aftertax cost of debt:
23.
The weighted average cost of capital for a firm may be dependent upon the
firm’s:
I. rate of growth.
II. debt-equity ratio.
III. preferred dividend payment.
IV. retention ratio.
24.
The weighted average cost of capital for a firm is the:
25.
Which one of the following statements is correct for a firm that uses debt in
its capital structure?
26.
If a firm uses its WACC as the discount rate for all of the projects it
undertakes then the firm will tend to:
I. reject some positive net present value projects.
II. accept some negative net present value projects.
III. favor high risk projects over low risk projects.
IV. increase its overall level of risk over time.
27.
Preston Industries has two separate divisions. Each division is in a separate
line of business. Division A is the largest division and represents 70 percent
of the firm’s overall sales. Division A is also the riskier of the two divisions.
Division B is the smaller and least risky of the two. When management is
deciding which of the various divisional projects should be accepted, the
managers should:
28.
Markley and Stearns is a multi-divisional firm that uses its WACC as the
discount rate for all proposed projects. Each division is in a separate line of
business and each presents risks unique to those lines. Given this, a
division within the firm will tend to:
29.
The discount rate assigned to an individual project should be based on:
30.
Assigning discount rates to individual projects based on the risk level of
each project:
31.
Which one of the following statements is correct?
32.
Phil’s is a sit-down restaurant that specializes in home-cooked meals.
Theresa’s is a walk-in deli that specializes in specialty soups and
sandwiches. Both firms are currently considering expanding their operations
during the summer months by offering pre-wrapped donuts, sandwiches,
and wraps at a local beach. Phil’s currently has a WACC of 14 percent while
Theresa’s WACC is 10 percent. The expansion project has a projected net
present value of $12,600 at a 10 percent discount rate and a net present
value of -$2,080 at a 14 percent discount rate. Which firm or firms should
expand and offer food at the local beach during the summer months?
33.
Wilderness Adventures specializes in back-country tours and resort
management. Travel Excitement specializes in making travel reservations
and promoting vacation travel. Wilderness Adventures has an aftertax cost
of capital of 13 percent and Travel Excitement has an aftertax cost of
capital of 11 percent. Both firms are considering building wilderness
campgrounds complete with man-made lakes and hiking trails. The
estimated net present value of such a project is estimated at $87,000 at a
discount rate of 11 percent and -$12,500 at a 13 percent discount rate.
Which firm or firms, if either, should accept this project?
34.
The subjective approach to project analysis:
35.
Which one of the following statements is correct?
36.
When a firm has flotation costs equal to 7 percent of the funding need,
project analysts should:
37.
The flotation cost for a firm is computed as:
38.
Incorporating flotation costs into the analysis of a project will:
39.
Flotation costs for a levered firm should:
40.
Chelsea Fashions is expected to pay an annual dividend of $0.80 a share
next year. The market price of the stock is $19.60 and the growth rate is 5
percent. What is the firm’s cost of equity?
41.
The Shoe Outlet has paid annual dividends of $0.65, $0.70, $0.72, and $0.75
per share over the last four years, respectively. The stock is currently selling
for $26 a share. What is this firm’s cost of equity?