Download PASSEMALL Prep app now
Scan QR code or get instant email to install app
Question:
The pure‐play method is used to estimate the beta of a project, which is then used to determine the cost of equity.
Comments
Your email address will not be published. Required fields are marked *
Comment *
Name*
Email*
URL
Save my name, email, and website in this browser for the next time I comment.
A manufacturing firm issues a semi‐annual coupon bond to finance a new project. The bond has a par value of $1,000, offers a coupon rate of 9%, and will mature in 15 years. Given that the bond’s current market value is $1,020.63, and the applicable tax rate is 35%, the company’s after‐ tax cost of debt is closest to:
5.69%.
While analyzing HMS Inc., Fred Browne notes that the company's liquidity as measured by its quick ratio has decreased over time while its current liabilities have remained constant. This could be explained by:
a decrease in accounts receivable.
Williams Inc. borrows $1.5m for a month through a banker’s acceptance. The company is offered an all‐inclusive rate of 9%. Its effective borrowing cost is closest to:
9.07%.
Consider the following statements: Statement 1: Dual-class share structures can easily be changed over time. Statement 2: Activist investors tend to have little impact on the company’s long-term investors. Which of the following is most likely?
Both statements are incorrect.
Which of the following is least likely an issue in estimating a company’s cost of debt?
Companies in different jurisdictions may face different tax rates.
The following data are reported for Moving Vans, Inc.:Dividend yield 5%Dividend payout 20%Return on equity 15%Assuming Moving Vans' dividend yield, dividend payout, and return on equity will remain constant indefinitely, the cost of equity capital is closest to:
17%.
Wreathfield, Inc. is choosing between two mutually exclusive projects. The cash flows for the two projects are below. The firm has a cost of capital of 12%, and the risk of the projects is equivalent to the average risk of the firm. Wreathfield should accept:
Neither project J nor project K.
The NPV profile of Project A is steeper than that of Project B. Which of the following is most likely that the crossover point occurs at an NPV of $5,000?
Project A receives most of its cash flows later in its life.
An analyst gathers the following information about the cost of raising new debt and equity for a company:The company’s target capital structure is 70% equity and 30% debt. If the company raises $12m in financing, its cost of capital will be closest to:
10.60%.
Which of the following is most likely to create an incentive for senior managers to act in the best interests of shareholders?
The threat of a hostile takeover.
Mentemeyer Corporation is a small firm that needs to increase short-term liquidity but has weak credit. The source of short term financing that would most likely be available to Mentemeyer is:
nonbank finance companies.
ABC Company currently has a debt‐to‐equity ratio of 0.3. Its target debt‐to‐equity ratio is 0.4. The risk‐free rate is 6%, and expected equity market return is 12%. ABC is considering a project that has a beta of 1.2. Given that the company’s after‐tax cost of debt is 7%, and the applicable tax rate is 40%, the WACC that should be used in evaluating this project is closest to:
11.43%.
A firm has one actively traded bond issue outstanding, with a 6% coupon and a yield to maturity of 5%. When estimating the firm's weighted average cost of capital (WACC), the appropriate after-tax cost of debt capital should most likely be:
less than 5%.
Consider the following statements:Statement 1: Any amendments to the company’s bylaws typically occur at Extraordinary General Meetings (EGMs).Statement 2: Proxy voting is adopted as a practice in order to protect the rights of creditors.Which of the following is most likely?
Only Statement 1 is correct.
Comments