Reference no: EM131990078

1. Expected cash dividends are $2.00, the dividend yield is 6%, flotation costs are 4% of price, and the growth rate is 4%. Compute cost of new common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

11.25%

12.35%

10.00%

10.25%

2. Assume a corporation has earnings before depreciation and taxes of $145,000, depreciation of $30,000, and that it has a 25 percent tax bracket. What are the after-tax cash flows for the company?

$116,250

$111,050

$120,850

$120,050

3. Stone Inc. is evaluating a project with an initial cost of $9,500. Cash inflows are expected to be $1,500, $1,500, and $10,000 in the three years over which the project will produce cash flows. If the discount rate is 6%, what is the net present value of the project?

$11,150

$26,930

$8,430

$1,650

4. Which of the following is a false statement?

Risky investments may produce large losses.

Risky investments may produce large gains.

The coefficient of variation is a risk measure.

Risk-averse investors cannot be induced to invest in risky assets.

5. When investment bankers act in the function of "underwriters," they

give a "firm commitment" to purchase the securities from the corporation at a set price.

guarantee that the company will not suffer a decline in earnings after taxes.

are allowed to sell as many securities as possible and return the rest unsold.

are allowed to give advice to the company’s management.

6. Kuhns Corp. has 190,000 shares of preferred stock outstanding that is cumulative. The dividend is $7.10 per share and has not been paid for 3 years. If Kuhns earned $1.50 million this year, what could be the maximum payment to the preferred stockholders on a per share basis? (Round your answer to 2 decimal places.)

$7.89 per share

$6.79 per share

$9.39 per share

$10.14 per share