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Exam3 F07

# Exam3 F07 - Exam3F07 Multiple Choice Identify the choice...

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Exam3F07 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? a. Long-term debt. b. Common stock. c. Accounts payable and accruals. d. Preferred stock. ____ 2. Which of the following statements is most correct? ____ 3. Which of the following statements is most correct? ____ 4. Dandy Product's overall weighted average required rate of return is 10 percent. Its yogurt division is riskier than average, its fresh produce division has average risk, and its institutional foods division has below- average risk. Dandy adjusts for both divisional and project risk by adding or subtracting 2 percentage points. Thus, the maximum adjustment is 4 percentage points. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division? ____ 5. Dobson Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent common stock. The company's CFO has obtained the following information: The before-tax yield to maturity on the company's bonds is 8 percent. The company's common stock is expected to pay a \$3.00 dividend at year end (D 1 = \$3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for \$60 a share. The firm uses the cost of new equity to calculate the cost of equity. Its flotation costs are 10%. The company's tax rate is 40 percent. What is the company's weighted average cost of capital (WACC)? a. 12.6% b. 8.03% c. 9.34%

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d. 7.9% e. 7.68% ____
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Exam3 F07 - Exam3F07 Multiple Choice Identify the choice...

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