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 have been accepted.
B)
...
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 have 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
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