Finance 300 Final Exam with Questions and Verified Answers

Finance 300 Final Exam with Questions and Verified Answers A companies optimal capital structure is... ANSWER the one that leads to maximum stock price Debt - Equity 0% 100% 10% 90% 20% 80% ... ... 100% 0% Higher the debt is the riskier it is Target capital structure is ANSWER the one that leads to minimum WACC Cost of capital equation ANSWER (WACC) Weighted average cost of capital WACC = WdKd(1 - t) +Ws Ks Net income ANSWER Earnings before taxes - Taxes (EBT - T) K = K* + IP ANSWER - K = Nominal Interest Rate - K* = Risk free or real interest Rate - IP = Inflation Premium or rate of inflation Working Capital ANSWER - level of current assets - financing of current assets Accounts Receivables aka Recievables *Lock box ANSWER Lock box is used to expedite collections Credit Policy includes (4 answers) ANSWER - credit period - collection policy - credit standard - cash discounts