1. The component costs of capital are market-determined variables in the sense that they are based on
investors required returns.
2. The before-tax cost of debt, which is lower than the after-tax cost, is used as the componen
1. Assume that you are a consultant to Broske Inc., and you have been provided with the following
data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of equity from retained
earnings based on the DCF approach?
Chapter 3 and 4 Quiz
1. You currently have $11,167 in your savings account. What interest rate do you need to earn in
order to have $20,000 in the account in 10 years?
D) There is not enough information to solve this question.
Chapter 5 Quiz
1. Liquid assets or funds are important to
A) cover unplanned expenses.
B) prevent interrupting your long-term investments.
C) prevent overdrafts in checking accounts.
D) cover some planned expenses.
E) All of the above are correct.
2. In order to decide if TNB should have actively sought Spartans business at the end of 1994
one must analyze the financial ratios and cash flow. If you look at the current ratio for 1994 it is
2.19 which means Spartan is capable of paying
Net Income Projections for the Spartan Roofing Company: 1995-1997 (000s)
(Developed by John Pattilla for TNB in 1994
B12. (CAPM) Owego Storage and Housing, Inc., is considering building a new warehouse in
Endicott, New York. Owego Storage has 2 million common shares outstanding. The share price
is $11. Assume rf = 4.5%, = 0.75, and rM - rf = 11.5%