BUSI 320 Read & Interact Chapter 11 Assignment solutions complete answers

BUSI 320 Read & Interact Chapter 11 Assignment solutions complete answers 

 

Identify the first step that a company should take to determine its appropriate capital mix.

 

A company’s weighted average cost of capital is the sum of the after-tax cost times the weight of each source of capital.

 

The cost of preferred stock is different from the cost of _____ because there is no maturity date on which principal must be paid.

 

Yield to maturity is the rate a firm has to pay on a

 

Using the following information, compute the required rate of return using the valuation approach.

 

Given the following information, what is the firm's weighted average cost of capital.

 

The cost of retained earnings is equal to the

 

A company's existing yield on debt is 11% with a tax rate of 40%. What is the company's cost of debt?

 

The firm uses equal proportions of debt at 5% and stock at 9%. What is the firm’s weighted average cost of financing?

 

The cost of common stock is

 

The firm has the following capital structure: Kd = 3.5%, Kp = 5.20%, and Ke = 8%. What is the weighted average cost of capital (WACC)? Assume equal weights of 33 percent are assigned for each element of the capital structure.

 

Given the following information, what is the required rate of return on common stock?



The interest payment on a debt is

 

A company’s after-tax cost of debt is 6.5% and its tax rate is 35%. What is the yield to maturity (YTM)?

 

Given the following information, what is the cost of new common stock?



The cost of preferred stock is

 

Milton Corporation gives the preferred stockholders an annual dividend of $5 per share. Each share of stock sells for $100 and selling costs of $3. What is the company's cost of preferred stock?

 

Based on the following capital structures, financial plan     is preferable.

 

Given that Ke = 4% + 6%, stockholders expect to receive a

 

The symbol K refers to

 

With respect to a firm's capital structure, a growth firm in a reasonably stable industry can afford more _____ than a firm in a cyclical industry.

 

Using the following information, compute the current price of common stock using the valuation approach.

 

The cost of retained earnings is 

 

The cost of new common stock is different from the cost of _____ because of the flotation costs involved.

 

A firm has retained earnings to support a capital structure of $50,000. Assuming the retained earnings represent 60% of the capital structure, the amount of retained earnings available is $ _____. (Do not use a dollar sign or comma in your answer).

 

The firm's minimum overall cost of capital represents its

 

As long as the firm's required rate of return is met the firm will be able to maintain or increase the

 

Retained earnings are

 

The cost of funds is referred to as the cost of _____.

 

The cost of debt is measured by

 

The firm has two financial plans to choose from. Given the following information, the company should choose plan     .

 

Financial capital consists of

 

The minimum acceptable rate of return is

 

 

 
 
 
MACRS classifies assets into _____ categories to determine the allowable rate of depreciation
 
 
 
When using the payback method, inflows after the cut off period ______
 
 
 
Capital rationing is a ______
 
 
 
NPV (net present value) measures what?
 
 
 
The need to use external sources of financing for investment projects may lead to ____ rationing
 
 
 
Capital budgeting decisions emphasize what?
 
 
 
The net present value method requires that all inflows provide a return that is equal to the ______
 
 
 
The cost of components in a firms capital structure change each time the firm varies its _____
 
 
 
The net present profile is a way to ____ portray the net present value of a project at different discount rates
 
 
 
The yield to maturity is greater than the cost of debt because ________
 
 
 
What is required when applying the net present value profile?
 
 
 
In a mutually exclusive investment decision, the firm will choose the investment that has the highest ______
 
 
 
In a non mutually exclusive investment decision the firm will choose the investments that have the highest _______.
 
 
 
Net present value is the preferred investment selection method because it________
 
 
 
The advantages of using the MIRR
 
 
 
A firm's optimum capital structure is one in which the firm's overall cost of capital is at the _____
 
 
 
Under capital rationing, acceptable projects must be ranked and only those with the highest ____ will be chosen
 
 
 
Which conceptually sound methods used to evaluate capital expenditures are more acceptable and should be applied to most situations?
 
 
 
Under capital rationing, a project will be deemed unacceptable if what?
 
 
 
What are the methods used to evaluate capital expenditures?
 
 
 
Net present value is the sum of the ______ values of all cash outflows and inflows related to a project
 
 
 
Net present value is the sum of the _________ values of all cash outflows and inflows related to a project
 
 
 
IRR (Internal Rate of return) measures what?
 
 
 
Under the payback method, the investment that ______ is the one selected.
 
 
 
A decision concerning the purchase of new technology is called a ____ decision
 
 
 
Payback measures what?
 
 
 
The payback method fails to consider
 
 
 
The firm's required rate of return in the capital budget decision is _____
 
 
 
The reinvestment assumption of the internal rate of return assumes that all inflows can be reinvested at the ______
 
 
 
 
 
 
 

 

6.
The cost of retained earnings is equal to the
 
 
7.
The cost of the components in a firm's capital structure changes each time the firm varies its
 
 
8.
Even though low-cost debt may appear to be the acceptable method of financing investments, the firm must still consider the overall _____ to the firm.
 
 
9.
Financial capital consists of
 
 
14.
A firm's optimum capital structure is one in which the firm's overall cost of capital is at the
 
 
18.
Given the following information, what is the return expected in the market?
Rf 5% 
Kj 12% 
β 1
 
 
19.
If funds cost the firm 12 percent, then all projects must be tested to ensure each earns a minimum rate of return of _____ percent.
 
 
20.
In order to raise capital, the company sells $2,000 bonds paying $200 in annual interest. What is the bond's yield?
 
 
24.
Razor Corporation's cost of preferred stock is 8%. The company's stock sells for $100 a share with selling costs are $5. What is the annual dividend to the preferred stock? (Round the answer to two decimal places.)
 
 
26.
Retained earnings is an _____ source of funds.
 
 
28.
True or false: a firm with a capital structure containing 70% retained earnings has a marginal cost of capital of $50,000. This indicates that after the first $50,000 of capital raised, retained earnings can no longer provide the 70% equity position of the firms capital structure.
 
 
29.
True or false: investments are judged against the specific means of financing.
 
 
 
 
 
 
 
 
 

 

1.
The after-tax cost of a debt is
 
 
3.
A company's existing yield on debt is 11% with tax and rate of 40%. What is the company's cost of debt?
 
 
5.
The cost of debt is measured by:
 
 
6.
The cost of funds is referred to as the cost of:
 
 
10.
The cost of the components in a firm's capital structure changes each time the firm varies its:
 
 
11.
Even though low-cost debt may appear to be the acceptable method of financing investments, the firm must still consider the overall _____ to the firm.
 
 
12.
Financial Capital consists of:
 
 
13.
A firm has retained earnings to support a capital structure of $50,000. Assuming retained earnings represents 60% of the capital structure, the amount of retained earnings available is ________
 
 
15.
A firm's optimum capital structure is one in which firm's overall cost of capital is at the:
 
 
16.
The firm's required rate of return in the capital budget decision is:
 
 
18.
Given the following information, what is the cost of new common stock?

DI = $2.50
P0 = $120
F = $5
g = 6%
 
 
21.
If funds cost the firm 12%, then all projects must be tested to ensure each earns a minimum rate of return of:
 
 
25.
T/F: The yield to maturity of a company's debt is set by the company
 
 
27.
Without exceeding norms acceptable to investors and creditors, most firms can use _______ percent debt in their capital structure