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1. Which of the following statements regarding cost of capital is incorrect?
A) Cost of capital essentially reflects how the market views the firm’s risk.
B) The overall cost of capital that covers the firm's costs of equity, preferred stock, and after-tax debt is called the weighted average cost of capital (WACC).
C) The return that lenders (bondholders) require on their loaned funds to the firm is the cost of debt.
D) For the weights of the capital structure components, firms should use the proportions of the book value, not the market value, of debt, common stock, and preferred stock.
2. Suppose that the inventory period is 40 days, the accounts payable period is 15 days, and the cash cycle is 35 days. What is the accounts receivable period?
A) 10 days
B) 25 days
C) 35 days
D) 50 days
Sankey, Inc., has current assets of $4,000, net fixed assets of $23,100, current liabilities of $2,500, and long-term debt of $12,400. What is the value of the shareholders' equity account for this firm? How much is net working capital?
Over the past several years there has been debate over the directions of U.S. fiscal and monetary policies. On the one hand, there are looming U.S. debt and deficit issues. On the other hand, there are the low interest rate policies of the Federal Re..
Compute the depreciation at EOY 3 for a truck using the MACRS method where the recovery period is 5 years.
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What will be the change in the firm's total monthly profits on a present value basis under these conditions?
Stock ABC just paid a $ 1 dividend yesterday. The dividend is expected to grow at a rate of 25% for the next 3 years when the required return is 15%. After that, from year 4 and thereafter (forever), the expected dividend growth rate will be 5% and t..
How does the deductibility of interest and dividends by the paying corporation affect the choice of financing (that is, the use of debt versus equity)?
The price of a non-dividend-paying stock is $100 and the continuously compounded risk-free rate is 5%. Demonstrate an arbitrage.
An endowment is set up to provide scholarships in perpetuity. Determine the present value of the endowment.
Cupid Chocolates bought a candy making machine that had an initial cost of $83760. It has a salvage value of $11164. Its operating costs are $5058 per year. It is saving the company $1245 per year because it is more efficient. The company anticipates..
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