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Question;1. Katie owns 100 shares of ABC stock. Which one of the;following terms is used to refer to the return that Katie and the other;shareholders require on their investment in ABC?;A. Weighted average cost of capital;B. Pure play cost;C. Cost of equity;D. Subjective cost;E. Cost of debt;C;2. Lester lent money to The Corner Store by purchasing bonds;issued by the store. The rate of return that he and the other lenders require;is referred to as the;A. pure play cost.;B. cost of debt.;C. weighted average cost of capital.;D. subjective cost.;E. cost of equity.;B;3. The common stock of Modern Interiors has a beta of 1.61;and a standard deviation of 27.4 percent. The market rate of return is 13.2;percent and the risk-free rate is 4.8 percent. What is the cost of equity for;this firm?;A. 18.32 percent;B. 19.97 percent;C. 21.08 percent;D. 24.40 percent;E. 26.05 percent;A;4. The Cracker Mill has a beta of 0.97, a dividend growth;rate of 3.2 percent, a stock price of $33 a share, and an expected annual;dividend of $1.06 per share next year. The market rate of return is 11.2;percent and the risk-free rate is 3.7 percent. What is the firm's cost of;equity?;A. 7.74 percent;B. 8.69 percent;C. 9.30 percent;D. 9.72 percent;E. 10.01 percent;5. Which one of the following terms is inclusive of both;direct and indirect bankruptcy costs?;A. Financial distress costs;B. Capital structure costs;C. Financial leverage;D. Homemade leverage;E. Cost of capital;6. Ernst Electrical has 9,000 shares of stock outstanding;and no debt. The new CFO is considering issuing $80,000 of debt and using the;proceeds to retire 1,500 shares of stock. The coupon rate on the debt is 7.5;percent. What is the break-even level of earnings before interest and taxes;between these two capital structure options?;A. $18,500;B. $21,000;C. $24,000;D. $32,500;E. $36,000;E;7. Shoe Box Stores is currently an all-equity firm with;28,000 shares of stock outstanding. Management is considering changing the;capital structure to 40 percent debt. The interest rate on the debt would be 9;percent. Ignore taxes. Jamie owns 300 shares of Shoe Box Stores stock that is;priced at $17 a share. What should Jamie do if she prefers the all-equity;structure but Shoe Box Stores adopts the new capital structure?;A. Borrow money and buy an additional 120 shares.;B. Borrow money and buy an additional 180 shares.;C. Keep her shares but loan out all of the dividend income;at 9 percent.;D. Sell 120 shares and loan out the proceeds at 9 percent.;E. Sell 180 shares and loan out the proceeds at 9 percent.


Paper#60760 | Written in 18-Jul-2015

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