Real rate of interest is less than nominal rate of interest

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Reference no: EM132055436

1. Fanza Fog's after tax coupon rate on its newly issued bonds in 10.1%. Its corportate tax rate is 40%. The company's target capital structure weight of debt is 35%. What would Fanza's cost of debt, rd (sublet d), be if we were to use it in the WACC formula?

A. 6.1%

B. 7.1%

C. 10.1%

D. 1.8%

2. If a firm has a net profit margin of 3%, a total asset turnover of 4x, and a DR (debt ratio) of 50%, then their ROA= ______ and their ROE=_______.

12%; 15%

6%; 12%

2% 24%

5%; 30%

3. When the real rate of interest is less than the nominal rate of interest, then:

A) disinflation must be occurring

B) investment returns cannot increase the purchasing power of an investment

C) nominal cash flows should be discounted with real rates

D) the rate of inflation must be positive

Reference no: EM132055436

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