External funding needs are computed as
Question # 00477513
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Updated on: 02/04/2017 11:47 PM Due on: 02/05/2017
External funding needs are computed as:
Projected total assets - (projected liabilities + projected net worth)
Projected total assets - (actual liabilities + net worth)
Projected current assets - (projected current liabilities + net worth)
None of the above
The Static Tradeoff theory of capital structure implies that firms with higher business risk have should have lower leverage.
True
False
The owners of a firm facing a high probability of bankruptcy prefer to invest in ____ projects, because ______.
safer; riskier projects make bankruptcy more likely
no new; the firm is likely to go bankrupt anyway
risky; the shareholders have little to lose and might win if successful
risky; creditors prefer taking a gamble rather than having the company default
A company has net income of $20,000 and a tax rate of 35 percent. Its total debt is $25,000, with principal payments of $5,000 due at the end of each year and an annual interest rate of 8%. What will be the company's interest tax shield in the upcoming year?
$8,750
$700
$9,450
$2,450
The higher the opportunity cost of capital the higher the NPV.
True
False
You are saving money for a down payment on a house. Suppose you want to have total savings of $20,000 in 10 years time and you have currently $5,000. What annual interest rate do you need to earn on your initial investment, assuming you contribute no additional savings?
10.0%
18.5%
12.5%
15.0%
The cost of capital for an all-equity-financed company that pays no dividends is zero.
True
False
Which is a commonly used proxy for the "risk-free rate"?
the average historical interest rate on long-term government bonds
the current market rate interest rate on a government-insured savings account
the current yield to maturity on a long-term government bond
the rate of return on a low volatility stock
Projected total assets - (projected liabilities + projected net worth)
Projected total assets - (actual liabilities + net worth)
Projected current assets - (projected current liabilities + net worth)
None of the above
The Static Tradeoff theory of capital structure implies that firms with higher business risk have should have lower leverage.
True
False
The owners of a firm facing a high probability of bankruptcy prefer to invest in ____ projects, because ______.
safer; riskier projects make bankruptcy more likely
no new; the firm is likely to go bankrupt anyway
risky; the shareholders have little to lose and might win if successful
risky; creditors prefer taking a gamble rather than having the company default
A company has net income of $20,000 and a tax rate of 35 percent. Its total debt is $25,000, with principal payments of $5,000 due at the end of each year and an annual interest rate of 8%. What will be the company's interest tax shield in the upcoming year?
$8,750
$700
$9,450
$2,450
The higher the opportunity cost of capital the higher the NPV.
True
False
You are saving money for a down payment on a house. Suppose you want to have total savings of $20,000 in 10 years time and you have currently $5,000. What annual interest rate do you need to earn on your initial investment, assuming you contribute no additional savings?
10.0%
18.5%
12.5%
15.0%
The cost of capital for an all-equity-financed company that pays no dividends is zero.
True
False
Which is a commonly used proxy for the "risk-free rate"?
the average historical interest rate on long-term government bonds
the current market rate interest rate on a government-insured savings account
the current yield to maturity on a long-term government bond
the rate of return on a low volatility stock
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Rating:
/5
Solution: External funding needs are computed as