Reference no: EM131901910
1. Denver Interiors has 62,000 shares of common stock outstanding at a price per share of $44. The firm also has 21,000 shares of preferred stock outstanding at a price per share of $53. There are 1,700 outstanding bonds with a face value of $1,100 and a price quote of 99.6. What is the capital structure weight of the preferred stock?
17.82 percent
20.04 percent
20.33 percent
19.51 percent
2. Meiston Press has a debt-equity ratio of 1.30. The pre-tax cost of debt is 8.75 percent and the cost of equity is 13.6 percent. What is the firm's weighted average cost of capital (WACC) if the tax rate is 34 percent?
11.21 percent
9.96 percent
10.33 percent
9.18 percent
3. Preston Industries has a WACC of 11.88 percent. The capital structure consists of 60.8 percent equity and 35.8 percent debt. The aftertax cost of debt is 6.3 percent and the cost of equity is 15.00 percent. What is the cost of preferred stock?
14.84 percent
18.94 percent
17.04 percent
17.74 percent
4. How can a firm determine its cost of debt if it currently has no debt outstanding?
The firm can use its cost of equity multiplied by (1 - Tax rate).
The firm should use the yield-to-maturity on currently outstanding bonds that have a bond rating similar to the bonds the firm plans to issue.
The firm should use the initial yield-to-maturity on its last outstanding bond issue.
The cost of debt should be set equal to the current risk-free rate.
5. Kelsey Foods has a company weighted average cost of capital (WACC) of 12.4 percent. Based on this WACC, the firm assigns a required return of 14.5 percent to risky projects, 12.4 percent to projects related to the expansion of the firm's current operations, and a required return of 11 percent to new, low-risk projects. Which one of the following terms best describes this firm's policy of assigning required returns?
pure play approach
basic approach
tax approach
subjective approach