FIS 480 EXAM 2 QUESTIONS AND ANSWERS A+ GRADED
Which of the following statements is correct?
If a company's tax rate increases, then, all else equal, its weighted average cost of
capital will decline.
Taylor Inc. estimates that its average-risk projects have a WACC of 10%, its
below-average risk projects have a WACC of 8%, and its above-average risk
projects have a WACC of 12%. Which of the following projects (A, B, and C)
should the company accept?
a. Project C, which is of above-average risk and has a return of 11%.
b. Project A, which is of average risk and has a return of 9%.
c. None of the projects should be accepted.
d. All of the projects should be accepted.
e. Project B, which is of below-average risk and has a return of 8.5%.
E. Project B, which is of below-average risk and has a return of 8.5%
The preemptive right is important to shareholders because it
Protects the current shareholders against a dilution of their ownership interests.
The term "additional funds needed (AFN)" is generally defined as follows:
Funds that a firm must raise externally from non-spontaneous sources, i.e., by
borrowing or by selling new stock to support operations.
A company expects sales to increase during the coming year, and it is using the
AFN equation to forecast the additional capital that it must raise. Which of the
following conditions would cause the AFN to increase?
a. The company increases its dividend payout ratio.
b. The company begins to pay employees monthly rather than weekly.
c. The company's profit margin increases.
d. The company decides to stop taking discounts on purchased materials.
e. The company previously thought its fixed assets were being operated at full
capacity, but now it learns that it actually has excess capacity.
A. The company increases its dividend payout ratio.
Which of the following statements is CORRECT?
The stock valuation model, P0= D1 / (r - g), can be used to value firms whose dividends
are expected to decline at a constant rate, i.e., to grow at a negative rate.
If a stock's dividend is expected to grow at a constant rate of 5% a year, which of
the following statements is CORRECT? The stock is in equilibrium.
The stock's price one year from now is expected to be 5% above the current price.
Which of the following statements about the cost of capital is CORRECT?
If a company's tax rate increases, them, all else equal, its weighted average cost of
capital will decrease.
Which of the following statements is CORRECT?
When calculating the cost of debt, a company needs to adjust for taxes, because
interest payments are deductible by the paying corporation.
The dividend yield is defined as:
next year's expected cash dividend divided by the current market price per share.
Which of the following statements is correct?
If a company's tax rate increases, then, all else equal, its weighted average cost of
capital will decline.
Taylor Inc. estimates that its average-risk projects have a WACC of 10%, its
below-average risk projects have a WACC of 8%, and its above-average risk
projects have a WACC of 12%. Which of the following projects (A, B, and C)
should the company accept?
a. Project C, which is of above-average risk and has a return of 11%.
b. Project A, which is of average risk and has a return of 9%.
c. None of the projects should be accepted.
d. All of the projects should be accepted.
e. Project B, which is of below-average risk and has a return of 8.5%.
E. Project B, which is of below-average risk and has a return of 8.5%
The preemptive right is important to shareholders because it
Protects the current shareholders against a dilution of their ownership interests.
The term "additional funds needed (AFN)" is generally defined as follows:
Funds that a firm must raise externally from non-spontaneous sources, i.e., by
borrowing or by selling new stock to support operations.
A company expects sales to increase during the coming year, and it is using the
AFN equation to forecast the additional capital that it must raise. Which of the
following conditions would cause the AFN to increase?
a. The company increases its dividend payout ratio.
b. The company begins to pay employees monthly rather than weekly.
c. The company's profit margin increases.
d. The company decides to stop taking discounts on purchased materials.
e. The company previously thought its fixed assets were being operated at full
capacity, but now it learns that it actually has excess capacity.
A. The company increases its dividend payout ratio.
Which of the following statements is CORRECT?
The stock valuation model, P0= D1 / (r - g), can be used to value firms whose dividends
are expected to decline at a constant rate, i.e., to grow at a negative rate.
If a stock's dividend is expected to grow at a constant rate of 5% a year, which of
the following statements is CORRECT? The stock is in equilibrium.
The stock's price one year from now is expected to be 5% above the current price.
Which of the following statements about the cost of capital is CORRECT?
If a company's tax rate increases, them, all else equal, its weighted average cost of
capital will decrease.
Which of the following statements is CORRECT?
When calculating the cost of debt, a company needs to adjust for taxes, because
interest payments are deductible by the paying corporation.
The dividend yield is defined as:
next year's expected cash dividend divided by the current market price per share.
