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FIN/571 Wk 2 Practice: Wk 2 Practice Questions

FIN/571 Wk 2 Practice: Wk 2 Practice Questions
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 21%, there is $15.8 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?
Multiple Choice

$1,392,000
$1,488,000
$2,360,000
$2,480,000

Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its debt has a pretax interest rate of 12%. Plasti-tech’s common stock trades at $15.00 per share and its most recent dividend was $1.00. Future dividends are expected grow by 4%. If the tax rate is 21%, what is Plasti-tech’s WACC?

Multiple Choice

7.39%
9.57%
10.35%
11.20%

If the tax rate is 21%, what is the cost of preferred stock that sells for $10 per share and pays a $1.20 dividend?

Multiple Choice

4.20%
7.80%
8.33%
12.00%

For a company that pays no corporate taxes, its WACC will be equal to:

Multiple Choice

the expected return on its assets.
the expected return on its debt.
the total value of its assets.
the expected return on its equity.

If a firm has twice as much equity as debt in its capital structure, then the firm is financed with:

Multiple Choice

75.0% debt.
66.7% equity.
40.0% debt.
33.3% equity.

What proportion of a firm is equity financed if the WACC is 14%, the before-tax cost of debt is 10.77%, the tax rate is 21%, and the required return on equity is 18%?

Multiple Choice

54.00%
57.86%
70.26%
77.78%

What dividend is paid on preferred stock if investors require a 9% rate of return and the stock has a market value of $54 per share and a book value of $50 per share?

Multiple Choice

$2.92
$4.50
$4.68
$4.86

What is the WACC for a firm with 40% debt, 20% preferred stock, and 40% equity if their respective costs are 6% after tax, 12%, and 18%? The firm’s tax rate is 21%.

Multiple Choice

9.48%
11.16%
12.00%
15.60%

A firm is financed 55% by common stock, 10% by preferred stock and 35% by debt. The required return is 15% on the common, 10% on the preferred, and 8% on the debt. If the tax rate is 21% what is the WACC?

Multiple Choice

10.72%
11.46%
11.70%
12.05%

What would you estimate as the cost of equity if a stock sells for $40, pays a $4.25 dividend, and is expected to grow at a constant rate of 5%?

Multiple Choice

17.46%
14.52%
12.69%
15.63%

A private placement avoids which one of the following costs?

Multiple Choice

Depression in the stock price
Administration costs
Registration with the SEC
Legal costs

An investor can earn 20% on underpriced IPOs, but will lose 10% on overpriced IPOs. If he is awarded $2,000 worth of shares in an overpriced IPO, how much of the underpriced issue must he be awarded in order to gain $500 total?

Multiple Choice

$1,500
$2,500
$3,500
$10,000

Assume the issuer incurs $2 million in other expenses to sell 4 million shares at $55 each to an underwriter and the underwriter sells the shares at $59 each. By the end of the first day’s trading, the issuing company’s stock price had risen to $68. What is the cost of underpricing?

Multiple Choice

$20 million
$32 million
$36 million
$40 million

A firm has just issued $250 million of equity which caused its stock price to drop by 3%. Calculate the loss in value of the firm’s equity given that its market value of equity was $1 billion before the new issue.

Multiple Choice

$7.5 million
$30.0 million
$33.3 million
$37.5 million

What direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $30 each to an underwriter and the underwriter sells the shares at $32 each?

Multiple Choice

7.29%
7.88%
8.65%
9.02%

Which one of these terms applies to a public company offering new shares to the general public?

Multiple Choice

Rights offer
Initial public offering
Venture capital offer
General cash offer

If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:

Multiple Choice

$1.
$2.
$38.
$40.

Private placement of debt securities occurs more frequently in:

Multiple Choice

smaller-sized firms.
larger-sized firms.
firms that are using venture capitalists.
combination with convertible bonds.

Money that is offered to finance a new business is known as:

Multiple Choice

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a general cash offer.
venture capital.
a private placement.

FIN 571 Wk 2 Practice Wk 2 Practice Questions

FIN 571 Wk 2 Practice Wk 2 Practice Questions

a rights issue.

Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:

Multiple Choice

acts as a signal to venture capitalists.
repays debt held by the venture capitalist.
retains a portion of the firm’s equity.
provides incentive to expend effort.
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ADDITIONAL INSTRUCTIONS FOR THE CLASS

Discussion Questions (DQ)

Initial responses to the DQ should address all components of the questions asked, include a minimum of one scholarly source, and be at least 250 words.

Successful responses are substantive (i.e., add something new to the discussion, engage others in the discussion, well-developed idea) and include at least one scholarly source.

One or two sentence responses, simple statements of agreement or “good post,” and responses that are off-topic will not count as substantive. Substantive responses should be at least 150 words.

I encourage you to incorporate the readings from the week (as applicable) into your responses.

Weekly Participation

Your initial responses to the mandatory DQ do not count toward participation and are graded separately.

In addition to the DQ responses, you must post at least one reply to peers (or me) on three separate days, for a total of three replies.

Participation posts do not require a scholarly source/citation (unless you cite someone else’s work).

Part of your weekly participation includes viewing the weekly announcement and attesting to watching it in the comments. These announcements are made to ensure you understand everything that is due during the week.

APA Format and Writing Quality

Familiarize yourself with APA format and practice using it correctly. It is used for most writing assignments for your degree. Visit the Writing Center in the Student Success Center, under the Resources tab in LoudCloud for APA paper templates, citation examples, tips, etc. Points will be deducted for poor use of APA format or absence of APA format (if required).

Cite all sources of information! When in doubt, cite the source. Paraphrasing also requires a citation.

I highly recommend using the APA Publication Manual, 6th edition.

Use of Direct Quotes

I discourage overutilization of direct quotes in DQs and assignments at the Masters’ level and deduct points accordingly.

As Masters’ level students, it is important that you be able to critically analyze and interpret information from journal articles and other resources. Simply restating someone else’s words does not demonstrate an understanding of the content or critical analysis of the content.

It is best to paraphrase content and cite your source.

LopesWrite Policy

For assignments that need to be submitted to LopesWrite, please be sure you have received your report and Similarity Index (SI) percentage BEFORE you do a “final submit” to me.

Once you have received your report, please review it. This report will show you grammatical, punctuation, and spelling errors that can easily be fixed. Take the extra few minutes to review instead of getting counted off for these mistakes.

Review your similarities. Did you forget to cite something? Did you not paraphrase well enough? Is your paper made up of someone else’s thoughts more than your own?

Visit the Writing Center in the Student Success Center, under the Resources tab in LoudCloud for tips on improving your paper and SI score.

Late Policy

The university’s policy on late assignments is 10% penalty PER DAY LATE. This also applies to late DQ replies.

Please communicate with me if you anticipate having to submit an assignment late. I am happy to be flexible, with advance notice. We may be able to work out an extension based on extenuating circumstances.

If you do not communicate with me before submitting an assignment late, the GCU late policy will be in effect.

I do not accept assignments that are two or more weeks late unless we have worked out an extension.

As per policy, no assignments are accepted after the last day of class. Any assignment submitted after midnight on the last day of class will not be accepted for grading.

Communication

Communication is so very important. There are multiple ways to communicate with me:

Questions to Instructor Forum: This is a great place to ask course content or assignment questions. If you have a question, there is a good chance one of your peers does as well. This is a public forum for the class.

Individual Forum: This is a private forum to ask me questions or send me messages. This will be checked at least once every 24 hours.

 

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