101 .Ravencroft Supplies is estimating its weighted average cost of capital (WACC). Ravencroft’s optimal capital structure includes 10% preferred stock, 30% debt, and 60% equity. They can sell additional bonds at a rate of 8%. The cost of issuing new preferred stock is 12%. The firm can issue new shares of common stock at a cost of 14.5%. The firm’s marginal tax rate is 35%. Ravencroft’s WACC is closest to:
A) 11.5%.
B) 13.3%.
C) 12.3%.
102 .Alton Industries will have better liquidity than its peer group of companies if its:
A) average trade payables are lower.
B) receivables turnover is higher.
C) quick ratio is lower.
103 .Ashlyn Lutz makes the following statements to her supervisor, Paul Ulring, regarding the basic principles of capital budgeting:
Statement 1: The timing of expected cash flows is crucial for determining the profitability of a capital budgeting project.
Statement 2: Capital budgeting decisions should be based on the after-tax net income produced by the capital project.
Which of the following regarding Lutz’s statements is most accurate?
Statement 1 Statement 2
A) Correct Incorrect
B) Correct Correct
C) Incorrect Correct
104 . Which of the following is least likely to be useful to an analyst who is estimating the pretax cost of a firm’s fixed-rate debt?
A) The coupon rate on the firm’s existing debt.
B) The yield to maturity of the firm’s existing debt.
C) Seniority and any special covenants of the firm’s anticipated debt.
105 . The marginal cost of capital is:
A) tied solely to the specific source of financing.
B) the cost of the last dollar raised by the firm.
C) equal to the firm's weighted cost of funds.
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