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?
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A
9.98%
B
10.40%
C
10.83%
D
11.28%
E
11.73%