Question 12 question bank id 71652 type multiple

This preview shows page 4 - 6 out of 6 pages.

QUESTION: 12 [QUESTION BANK ID: 71652] TYPE: MULTIPLE CHOICE CORRECT Which of the following statements is CORRECT? << HIDE ANSWERS A In the WACC calculation, we must adjust the cost of preferred stock (the market yield) to reflect the fact that 70% of the dividends received by corporate investors are excluded from their taxable income. We should use historical measures of the component costs from prior financings when estimating a company’s WACC for capital budgeting purposes. The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company’s beta all decline by a sufficiently large amount. Its cost of retained earnings is the rate of return stockholders require on a firm’s common stock. The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of interest on debt. B C D E
QUESTION: 13 [QUESTION BANK ID: 52715] TYPE: MULTIPLE CHOICE CORRECT Ang Enterprises has a levered beta of 1.10, its capital structure consists of 40% debt and 60% equity, and its tax rate is 40%. What would Ang's beta be if it used no debt, i.e., what is its unlevered beta? B C D E
QUESTION: 14 [QUESTION BANK ID: 72146] TYPE: MULTIPLE CHOICE CORRECT Suppose the December CBOT Treasury bond futures contract has a quoted price of 80-07. The T-bond is a 20-year 6% coupon bond and the interest is paid semi-annually. What is the implied annual interest rate inherent in the futures contract?
QUESTION: 15 [QUESTION BANK ID: 37860] TYPE: MULTIPLE CHOICE CORRECT Suppose the September CBOT Treasury bond futures contract has a quoted price of 89-09. The T-bond is a 20-year 6% coupon bond and the interest is paid semi-annually. What is the implied annual interest rate inherent in this futures contract?
C 7.00% D 7.35% E 7.72% QUESTION: 16 [QUESTION BANK ID: 111467] TYPE: MULTIPLE CHOICE CORRECT Assume that Considine Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.90; P0 = $22.50; and g = 7.00% (constant). Based on the DCF approach, what is Considine's cost of equity from retained earnings? << HIDE ANSWERS A 9.98% B 10.40% C 10.83% D 11.28% E 11.73%

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture