Fixed costs to total project value tend to have higher betas

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Reference no: EM132073264

1. New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000 shares of stock outstanding. The company's interest expense was $500,000. The corporate tax rate is 40 percent. What was the company's operating income (EBIT)?

a. $ 980,000

b. $1,220,000

c. $2,000,000

d. $2,500,000

e. $3,500,000

2. Companies with high ratios of fixed costs to total project value tend to have higher betas.

True

False

3. Stocks differ from bond because____

a. Bond cash flows are known while cash flows are uncertain.

b. Firms pay bond cash flows prior to paying taxes while stock cash flows are after-tax.

c. The ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase.

d. All of the above.

Reference no: EM132073264

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