Debreu Beverages has an optimal capital structure that is 70% common equity,
20% debt, and 10% preferred stock. Debreu's pretax cost of equity is 9%. Its pretax
cost of preferred equity is 7%, and its pretax cost of debt is also 5%. If the
corporate tax r
Concept Learning Exercise 2
1. Assume a $6,500 investment and the following cash flows for two alternatives.
Under the payback method, which of the following could be concluded?
Investment X should be selected.
2. An asset fitting into the 7-year MACRS ca
Floating rate bonds provide which one of the following advantages?
A lower risk for the issuing corporation
A higher initial rate received by the investor
Higher tax advantages for the investor than a conventional bond
A fixed market value for the investo
With regard to interest rates and bond prices, it can be said that
a 1% change in interest rates will cause a greater change in long-term bond prices than shortterm prices.
a 1% change in interest rates will cause a greater change in short-term bond price
1. The marginal principle of retained earnings means that each potential project to be
financed by retained earnings must provide a higher rate of return than the
stockholders can achieve after paying taxes on the distributed dividends.
2. The residual th
Session 6 learning concepts exercise
The International Finance Corporation (IFC) is
a unit of the World Bank charged with the responsibility of providing capital to multinational
corporations and others involved in international trade.