FIN/571 Wk 2 Practice: Wk 2 Practice Questions
FIN/571 Wk 2 Practice: Wk 2 Practice Questions
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 21%, there is $15.8 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?
Multiple Choice
$1,392,000
$1,488,000
$2,360,000
$2,480,000
Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its debt has a pretax interest rate of 12%. Plasti-tech’s common stock trades at $15.00 per share and its most recent dividend was $1.00. Future dividends are expected grow by 4%. If the tax rate is 21%, what is Plasti-tech’s WACC?
Multiple Choice
7.39%
9.57%
10.35%
11.20%
If the tax rate is 21%, what is the cost of preferred stock that sells for $10 per share and pays a $1.20 dividend?
Multiple Choice
4.20%
7.80%
8.33%
12.00%
For a company that pays no corporate taxes, its WACC will be equal to:
Multiple Choice
the expected return on its assets.
the expected return on its debt.
the total value of its assets.
the expected return on its equity.
If a firm has twice as much equity as debt in its capital structure, then the firm is financed with:
Multiple Choice
75.0% debt.
66.7% equity.
40.0% debt.
33.3% equity.
What proportion of a firm is equity financed if the WACC is 14%, the before-tax cost of debt is 10.77%, the tax rate is 21%, and the required return on equity is 18%?
Multiple Choice
54.00%
57.86%
70.26%
77.78%
What dividend is paid on preferred stock if investors require a 9% rate of return and the stock has a market value of $54 per share and a book value of $50 per share?
Multiple Choice
$2.92
$4.50
$4.68
$4.86
What is the WACC for a firm with 40% debt, 20% preferred stock, and 40% equity if their respective costs are 6% after tax, 12%, and 18%? The firm’s tax rate is 21%.
Multiple Choice
9.48%
11.16%
12.00%
15.60%
A firm is financed 55% by common stock, 10% by preferred stock and 35% by debt. The required return is 15% on the common, 10% on the preferred, and 8% on the debt. If the tax rate is 21% what is the WACC?
Multiple Choice
10.72%
11.46%
11.70%
12.05%
What would you estimate as the cost of equity if a stock sells for $40, pays a $4.25 dividend, and is expected to grow at a constant rate of 5%?
Multiple Choice
17.46%
14.52%
12.69%
15.63%
A private placement avoids which one of the following costs?
Multiple Choice
Depression in the stock price
Administration costs
Registration with the SEC
Legal costs
An investor can earn 20% on underpriced IPOs, but will lose 10% on overpriced IPOs. If he is awarded $2,000 worth of shares in an overpriced IPO, how much of the underpriced issue must he be awarded in order to gain $500 total?
Multiple Choice
$1,500
$2,500
$3,500
$10,000
Assume the issuer incurs $2 million in other expenses to sell 4 million shares at $55 each to an underwriter and the underwriter sells the shares at $59 each. By the end of the first day’s trading, the issuing company’s stock price had risen to $68. What is the cost of underpricing?
Multiple Choice
$20 million
$32 million
$36 million
$40 million
A firm has just issued $250 million of equity which caused its stock price to drop by 3%. Calculate the loss in value of the firm’s equity given that its market value of equity was $1 billion before the new issue.
Multiple Choice
$7.5 million
$30.0 million
$33.3 million
$37.5 million
What direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $30 each to an underwriter and the underwriter sells the shares at $32 each?
Multiple Choice
7.29%
7.88%
8.65%
9.02%
Which one of these terms applies to a public company offering new shares to the general public?
Multiple Choice
Rights offer
Initial public offering
Venture capital offer
General cash offer
If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:
Multiple Choice
$1.
$2.
$38.
$40.
Private placement of debt securities occurs more frequently in:
Multiple Choice
smaller-sized firms.
larger-sized firms.
firms that are using venture capitalists.
combination with convertible bonds.
Money that is offered to finance a new business is known as:
Multiple Choice
Read Also: HSN 476 Week 2 Assignment Payment Mode Analysis
a general cash offer.
venture capital.
a private placement.
a rights issue.
Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:
Multiple Choice
acts as a signal to venture capitalists.
repays debt held by the venture capitalist.
retains a portion of the firm’s equity.
provides incentive to expend effort.
V090620
ADDITIONAL INSTRUCTIONS FOR THE CLASS
Discussion Questions (DQ)
Initial responses to the DQ should address all components of the questions asked, include a minimum of one scholarly source, and be at least 250 words.
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I encourage you to incorporate the readings from the week (as applicable) into your responses.
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In addition to the DQ responses, you must post at least one reply to peers (or me) on three separate days, for a total of three replies.
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I highly recommend using the APA Publication Manual, 6th edition.
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I discourage overutilization of direct quotes in DQs and assignments at the Masters’ level and deduct points accordingly.
As Masters’ level students, it is important that you be able to critically analyze and interpret information from journal articles and other resources. Simply restating someone else’s words does not demonstrate an understanding of the content or critical analysis of the content.
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