Question : 53.A firm has a capital structure of 40% debt and : 1325719

 

 

53.A firm has a capital structure of 40% debt and 60% equity. The firm has bonds outstanding with a face value of $20 million. The bonds pay, on average, a 8% annual coupon and have an average maturity length of 7 years. The market value of the bonds is 110% of face value and the tax rate facing the firm is 40%. The firm has common stock with a beta of 1.25. The risk free rate on Treasury bonds is 2%, while the market risk premium is 8%. A project requires an investment of $10,000 today and will pay $2,500 annually for six years. What is the NPV of the project?

a.$825

b.$1,320

c.$1,460

d.$1,540

 

 

 

54.Which statement is FALSE regarding WACC and its components?

a.The cost of debt is usually less than the cost of equity.

b.The WACC should be used as the discount rate for all projects that the firm considers.

c.For an all-equity firm, the cost of equity equals the WACC.

d.The WACC may increase if the firm seeks external financing for a project.

 

 

 

55.Which statement is true about a firm that earns ZERO economic profit?

a.The firm is competing in a non-competitive environment.

b.The market must have high entry barriers to other firms.

c.The NPV of projects the firm considers equals zero.

d.The accounting income for projects equals zero.

 

 

 

56.A project’s discount rate

a.must be lower than the cost of funds for the firm’s current list of projects.

b.must be high enough to compensate investors for the project’s risk.

c.must be higher than the cost of funds for the firm’s current list of projects.

d.none of the above.

 

 

 

57.Nalcoa Corp. is financing a project that is in the same industry as its current portfolio of projects. If Nalcoa has a beta of 1.5 and the expected market risk premium is 8% while the risk-free rate is 5% then what is the weighted average cost of capital for Nalcoa if it is, and plans to continue to be an all equity financed firm?

a.9.5%

b.13.0%

c.17.0%

d.there is not enough information to calculate the WACC

 

 

 

 

 

58.Operating leverage measures

a.the effect of variable costs on the responsiveness of the firm’s earnings before interest and taxes to changes in the level of sales.

b.the effect of fixed operating costs on the responsiveness of the firm’s earnings before interest and taxes to changes in the level of gross income.

c.the effect of fixed operating costs on the responsiveness of the firm’s earnings before interest and taxes to changes in the level of sales.

d.none of the above.

 

 

 

59.Purple Bell Butter Company increased its sales by $2,000 over that of the previous years’s figure of $50,000. Consequently, Purple Bell’s earnings before interest and taxes increased from $3,000 to $3,300 during the same period. Calculate Purple Bell’s operating leverage.

a.25

b.4

c.2.5

d.none of the above

 

 

 

60.A high degree of operating leverage suggests that

a.a small percentage increase in sales leads to a large percentage increase in earnings before interest and taxes.

b.a small percentage increase in sales leads to an identical percentage increase in earnings before interest and taxes.

c.a large percentage increase in sales leads to a small percentage increase in earnings before interest and taxes.

d.none of the above.

 

 

 

61.Which of the following industries would you expect to have the highest degree of operating leverage?

a.financial consulting

b.investment banking

c.electrical utility

d.internet publishing

 

 

 

62.A firm’s weighted average cost of capital is

a.the cost of capital applicable to all new forms of capital that the firm may raise in the future.

b.the simple weighted average of the current required rates of return on debt and equity.

c.the higher of either equity or debt capital that the firm is currently utilizing in its capital structure.

d.none of the above.

 

 

 

 

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more