Financial Managing and Capital Budgeting

 Financial Supervision and Capital Budgeting Essay

Chapter 15

Question you

Represents: 1

Which in the following is NOT a capital component when ever calculating the weighted normal cost of capital (WACC)? Select one answer.

| a. Long-term financial debt. |

| b. Accounts payable. |

| c. Retained profits. |

| d. Common inventory. |

| e. Preferred stock. |


Represents for this submission: 1/1.

Problem 2

Marks: one particular

For a typical organization, which from the following sequences is CORRECT? Every rates want taxes, and assume the firm operates at its concentrate on capital composition. Choose one response.

| a. re > rs > WACC > rd. |

| w. rs > re > rd > WACC. |

| c. WACC > lso are > rs > rd. |

| g. rd > re > rs > WACC. |

| e. WACC > rd > rs > lso are. |


Signifies for this submission: 1/1.

Query 3

Marks: 1

Jackson Inc. uses only collateral capital, and it has a couple of equally-sized categories. Division A's cost of capital is twelve. 0%, Section B's cost is 14. 0%, and the amalgamated WACC is definitely 12. 0%. All of Division A's jobs have the same risk, as do all of Division B's projects. However , the assignments in Split A include less risk than those in Division M. Which from the following jobs should Jackson accept? Select one answer.

| a. A Department B project with a 13% return. |

| b. A Division N project having a 12% come back. |

| c. A Split A project with an 11% return. |

| d. A Division Task management with a 9% return. |

| e. A Division M project with an 11% return. |

The right answer is usually statement c. Division A should accept only tasks with a return greater than 10%, and Section B will need to accept just projects having a return greater than 14%. Just statement c meets this criterion. Right

Marks in this submission: 1/1.

Question 5

Markings: 1

Which in the following claims is CORRECT?

Select one answer.

| a. Inside the WACC calculation, we must adapt the cost of preferred stock (the market yield) to echo the fact that 70% with the dividends received by corporate investors are excluded off their taxable profits. | | | m. We should work with historical actions of the part costs by prior financings when price a company's WACC for capital cash strategy purposes. | | | c. The price of new fairness (re) may perhaps be lower than the price of retained earnings (rs) if the market risk premium, free of risk rate, and the company's beta all fall by a completely large amount. | | | d. Its expense of stored earnings is a rate of return stockholders require on the firm's prevalent stock. | | | e. The component cost of preferred share is stated as rp(1 пЂ­ T), because desired stock payouts are remedied as set charges, like the treatment of fascination on debt. | | Correct

Signifies for this submitter: 1/1.

Issue 5

Marks: 1

Hettenhouse Company's perpetual preferred share sells for $102. 60 per share, and it pays a $9. 50 gross annual dividend. If the company were to sell a new preferred issue, it would get a flotation cost of 4. 00% of the price paid out by shareholders. What is you’re able to send cost of favored stock use with calculating the WACC? Choose one answer.

| a. 9. 27% |

| n. 9. 65% |

| c. 10. 04% |

| g. 10. 44% |

| elizabeth. 10. 86% |

Preferred share price| $102. 50

Favored dividend| $9. 50

Flotation cost| four. 00%

rp = Dp/(Pp(1 пЂ­ F))| 9. 65%



Marks for this submission: 1/1.

Question 6

Marks: one particular

Imagine you can be a consultant to Magee Inc., and you have been provided with the subsequent data: rRF = 5. 00%; RPM = a few. 00%; and b = 1 . 12-15. What is the expense of equity via retained income based on the CAPM approach? Choose one answer.

| a. on the lookout for. 75% |

| b. 10. 04% |

| c. twelve. 34% |

| d. twelve. 65% |

| e. twelve. 97% |

rRF| 4. 00%

RPM| five. 00%

b| 1 . 15

rs = rRF & (RPM п‚ґ b)| on the lookout for. 75%



Marks in this submission: 1/1.

Question 7

Markings: 1

Assume that...

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