gb550 unit 5 quiz

1. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from retained earnings? (Points : 2) 11.10%
11.68%
12.30%
12.94%

Question 2. 2. Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach? (Points : 2) 9.42% 9.91% 10.44% 10.96%

Question 3. 3. Anderson Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected. WACC: 9.00% Year 0 1 2 3 Cash flows -$1,000 $500 $500 $500 (Points : 2) $265.65 $278.93 $292.88 $307.52

Question 4. 4. A company’s perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock? (Points : 2) 7.81% 8.22% 8.65% 9.10%

Question 5. 5. DeLong Inc. has fixed operating costs of $470,000, variable costs of $2.80 per unit produced, and its products sell for $4.00 per unit. What is the company's breakeven point, i.e., at what unit sales volume would income equal costs? (Points : 2) 391,667 411,250 431,813 453,403

Question 6. 6. Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? (Points : 2) A project’s IRR increases as the WACC declines. A project’s NPV increases as the WACC declines. A project’s MIRR is unaffected by changes in the WACC. A project’s regular payback increases as the WACC declines.

Question 7. 7. For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly common equity. (Points : 2) True False

Question 8. 8. Which of the following statements is CORRECT? (Points : 2) The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

Question 9. 9. The cost of equity raised by retaining earnings can be less than, equal to, or greater than the cost of external equity raised by selling new issues of common stock, depending on tax rates, flotation costs, the attitude of investors, and other factors. (Points : 2) True False

Question 10. 10. Which of the following statements is CORRECT? (Points : 2) One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project’s full life. One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money. One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital. One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.