Answered: Which of the following is CORRECT?…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter15: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 2Q: How would each of the following changes tend to affect aggregate payout ratios (that is, the average...

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Which of the following is CORRECT?

Select one:

a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.

b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation.

c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM.

d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC.

e. All of the above are correct.

Which of the following is CORRECT?

Select one:

a. If the NPV of a project is negative, the IRR for the project must also be negative.

b. A project's MIRR can never exceed its IRR.

c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV.

d. If Project 1's IRR exceeds Project 2's IRR, then 1 must have a higher NPV than 2.

e. If a project with normal cash flows has an IRR greater than WACC, the project must have a positive NPV.

You purchase a house for $250,000. After you make your down payment of $50,000, you are financing $200,000 for 30 years at an annual percentage rate of 5.4%. How much are your monthly payments?

Select one:

a. Less than $1,000

b. Between $1,000 and $1,050

c. Between $1,050 and $1,100

d. Between $1,100 and $1,150

e. Greater than $1,200

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