Chapter-10-PracticeProblems (2)

Chapter-10-PracticeProblems (2) - Chapter 10 Practice...

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(10-1) Capital F I Answer: a EASY 1. "Capital" is sometimes defined as funds supplied to a firm by investors. a. True b. False (10-1) Cost of capital F I Answer: a EASY 2. The cost of capital used in capital budgeting should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets. a. True b. False (10-4) Cost of preferred F I Answer: b EASY 3. The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends received by a corporation may be excluded from the receiving corporation's taxable income. a. True b. False (10-6) Internal vs. external common C I Answer: b EASY 4. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? a. Increase the dividend payout ratio for the upcoming year. b. Increase the percentage of debt in the target capital structure. c. Increase the proposed capital budget. d. Reduce the amount of short-term bank debt in order to increase the current ratio. e.
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Chapter-10-PracticeProblems (2) - Chapter 10 Practice...

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