Reference no: EM131088034
Which of the following statements is correct?
A The capital structure that maximizes expected EPS also maximizes the price per share of common stock
B The capital structure that minimizes the interest rate on debt also maximizes the expected EPS
C The capital structure that minimizes the required return on equity also maximizes the stock price
D The capital structure that minimizes the WACC also maximizes the price per share of common stock
E The capital structure that gives the firm the best credit rating also maximizes the stock price
Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M’s growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has substantial growth opportunities, and its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is correct?
A Firm M probably has a lower debt ratio than Firm N
B Firm M probably has a higher dividend payout ratio than Firm N
C If the corporate tax rate increases, the debt ratio of both firms is likely to decline
D The two firms are equally likely to pay high dividends E Firm N is likely to have a clientele of shareholders who want to receive consistent, stable dividend income
Which of the following statements is correct?
A One defect of the IRR method vs. the NPV is that the IRR does not take account of cash flows over a project’s full life
B One defect of the IRR method vs. the NPV is that the IRR does not take account of the time value of money
C One defect of the IRR method vs. the NPV is that the IRR does not take account of the cost of capital
D One defect of the IRR method vs. the NPV is that the IRR values a dollar received today the same as a dollar that will not be received until sometime in the future
E One defect of the IRR method vs. the NPV is that the IRR does not take proper account of differences in the sizes of projects
Capitalized cost of assset is the sum of original cost
: The capitalized cost of an assset is the sum of the original cost of the asset and the present value of maintaining the asset. Suppose a company is considering the purchase of two different machines. Machine 1 costs $10000 and t years from now will c..
|
Find EBIT indifference level associated with Financing plans
: Abe forester and three of his friends from college have interested a group of venture capitalists in backing their business idea. To finance the new venture two plans have been proposed. Find the EBIT indifference level associated with the two financ..
|
Payback of project that requires an initial investment
: Which comes closest to the payback of a project that requires an initial investment of $195, produces cash flows of $22 at the end of each year for 5 consecutive years beginning in one year, and provides a final cash flow at the end of year 6 of $60?..
|
Expected EPS also maximizes price per share of common stock
: The capital structure that maximizes expected EPS also maximizes the price per share of common stock. The capital structure that minimizes the interest rate on debt also maximizes the expected EPS. One defect of the IRR method vs. the NPV is that the..
|
Paying the credit card company when the card is paid off
: Barra Moore’s credit card company requires a minimum monthly payment of $19.99. The credit card company charges 21% annual interest. Barra owes $1,000 on this card. How much will Barra end up paying the credit card company when the card is paid off?
|
Beginning a year from now and continuing in perpetuity
: Dewey Cheatem deposited $25,000 into a savings account. This savings account pays 8% annual interest compounded semi-annually. Beginning a year from now and continuing in perpetuity, equal annual withdrawals are to be made. What is the maximum amount..
|
Create portfolio that has an expected return
: You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 10.9 percent.
|
What is the total rate of return on the bond
: Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% (BEY or APR). The bond has 3 years until maturity. What is the total rate of return on the bond over the six month period?
|