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UNT Finance 3770 Cumulative Final Multiple Choice

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UNT Finance 3770 Cumulative Final Multiple Choice Using the weighted average cost of capital as the required rate of return for every project will A) cause a firm to reject projects that should hav ... e been accepted. B) cause a firm to accept projects that were too risky. C) result in maximization of shareholder wealth. D) A and B above - ✔✔D Higher flotation costs will result in all of the following EXCEPT A) higher after-tax cost of debt. B) higher weighted average cost of capital. C) higher cost of retained earnings. D) higher cost of common equity when new common shares are sold. - ✔✔C A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of 3.5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.25 per share. The company's marginal tax rate is 35%. Therefore, the cost of preferred stock is A) 18.87%. B) 17.72%. C) 14.26%. D) 12.94%. - ✔✔B Sentry Manufacturing paid a dividend yesterday of $5 per share. The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing's stock today is $29 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of retained earnings is A) 28.38%. B) 24.12%. C) 26.62%. D) 31.40%. - ✔✔C Sentry Manufacturing paid a dividend yesterday of $5 per share. The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing's stock today is $29 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of new common stock is A) 28.38%. B) 24.12%. C) 26.62%. D) 31.40%. - ✔✔A The risk free rate of return is 2.5% and the market risk premium is 8%. Rogue Transport has a beta of 2.2 and a standard deviation of returns of 28%. Rogue Transport's marginal tax rate is 35%. Analysts expect Rogue Transport's dividends to grow by 6% per year for the foreseeable future. Using the capital asset pricing model, what is Rogue Transport's cost of retained [Show More]

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