Exam 3 Practice

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t Finance 333 Practice Examination 3 1. Given the following information on S & G Inc. capital structure, compute the company's weighted average cost of capital. Type of Percent of Before Tax Capital Capital Structure Component Cost Bonds 40% 7.5% Preferred Stock 5% 11% Common Stock (Internal Only) 55% 15% The company's marginal tax rate is 40%. a. 13.3% b. 7.1% c. 10.6% d. 10% 2. In general, the most expensive source of capital is: a. preferred stock b. new common stock c. debt d. retained earnings 3. Sonderson…show more content…
$4.8 million c. $8.2 million d. $12.0 million 13. The break-even quantity of output results in an EBIT level: a. equal to the fixed costs b. equal to the contribution margin c. equal to zero d. dependent upon the sales level 14. Financing a portion of a firm's assets with securities bearing a fixed rate of return in hopes of increasing the return to stockholders refers to: a. business risk b. financial leverage c. operating leverage d. all of the above 15. Optimal capital structure is: a. the explicit cost of debt b. the implicit cost of debt c. the change in the cost of equity caused by the issuance of the debt d. none of the above 16. A high degree of variability in a firm's earnings before interest and taxes relates to: a. business risk b. financial risk c. financial leverage d. operating leverage 17. The final approval of a dividend payment comes from: a. the controller b. the president of the company c. the board of directors d. It is a joint decision requiring approval from all of the above. 18. Fixed operating costs do not include: a. interest changes b. rent c. depreciation d. all of the above Use the following information to answer the next 3 questions: The initial outlay for Project A is $10,000. The firm’s required rate of return for

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