Q&A Hero

Q: Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock? A) Pre-issue date B) Aftermarket date C) Declaration date D) Holder-of-record date E) Ex-rights date

Q: Which one of the following statements is correct concerning the direct costs of issuing securities? A) Domestic bonds are generally more expensive to issue than equity IPOs. B) The gross spread as a percentage of proceeds is the same for similar-sized IPOs and SEOs. C) A seasoned offering is always more expensive on a percentage basis than an IPO. D) There tends to be substantial economies of scale when issuing any type of security. E) The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.

Q: The total direct costs of underwriting an equity IPO: A) tend to increase on a percentage basis as the total proceeds of the IPO increase. B) are generally between 7 and 9 percent, regardless of the issue size. C) tend to be less than the direct costs of issuing bonds on a percentage of proceeds basis. D) exclude the gross spread. E) can be as low as 5.5 percent and as high as 25 percent of gross proceeds.

Q: When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to: A) increase. B) decrease. C) remain constant. D) respond, but the direction of the response is not predictable as shown by past studies. E) decrease momentarily and then immediately increase substantially within an hour following the announcement.

Q: All of the following are supporting arguments in favor of IPO underpricing except which one? A) Helps prevent the "winner's curse" B) Rewards institutional investors who share their market value opinions C) Reduces potential lawsuits against underwriters D) Diminishes underwriting risk E) Provides better returns to issuing firms

Q: If a firm commitment IPO is overpriced then the: A) investors in the IPO may consider suing the underwriters. B) Green Shoe provision will probably be utilized. C) stock price will generally increase on the first day of trading. D) issuing firm is guaranteed to be successful in the long term. E) issuing firm receives less money than it probably should have.

Q: Individual investors might avoid requesting 100 shares in an upcoming IPO because they: A) do not want to be bothered with submitting their bid to the SEC for approval. B) do not want to abide by the quiet period requirement. C) are prevented from entering orders for less than 1,000 shares. D) are more apt to receive shares if the IPO is under allocated. E) would have to pay a premium based on their small order size.

Q: With Dutch auction underwriting: A) each winning bidder pays the minimum price offered by any bidder. B) all successful bidders pay the same price per share. C) all bidders receive at least a portion of the quantity for which they bid. D) the selling firm receives the maximum possible price for each security sold. E) the bidder for the largest quantity receives the first allocation of securities.

Q: Which one of the following statements is correct? A) The quiet period commences when a registration statement is filed with the SEC and ends on the day the IPO shares commence trading. B) Lockup agreements outline how oversubscribed IPO shares will be allocated. C) Additional IPO shares can be issued in accordance with the lockup agreement. D) Quiet period restrictions only apply to the issuer of new securities. E) A public interview with an issuer's CFO could cause a forced delay in the issuer's IPO.

Q: Which one of the following is a key goal of the aftermarket period? A) Collecting the largest number of Dutch auction bids as possible B) Determining a fair offer price C) Supporting the market price for a new securities issue D) Establishing a broad-based underwriting syndicate E) Distributing red herrings to as many potential investors as possible

Q: With firm commitment underwriting, the issuing firm: A) is unsure of the total amount of funds it will receive until after the offering is completed. B) is unsure of the number of shares it will actually issue until after the offering is completed. C) knows exactly how many shares will be purchased by the general public during the offer period. D) retains the financial risk associated with unsold shares. E) knows upfront the amount of money it will receive from the stock offering.

Q: Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following? A) Green Shoe provision B) Red herring provision C) Quiet provision D) Lockup agreement E) Post-issue agreement

Q: The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the ________ period. A) auction B) quiet C) lockup D) Green Shoe E) red

Q: Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting? A) Dutch auction B) Best efforts C) Public rights D) Private placement E) Market commitment

Q: Jones & Co. recently went public and received $23.07 a share on their entire offer of 30,000 shares. Keeser & Co. served as the underwriter and sold 28,500 shares to the public at an offer price of $26.50 a share. What type of underwriting was this? A) Best efforts B) Shelf C) Oversubscribed D) Private placement E) Firm commitment

Q: The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the: A) gross spread. B) under price amount. C) filing fee. D) new issue premium. E) offer price.

Q: A syndicate can best be defined as a: A) venture capitalist. B) group of attorneys providing services for an IPO. C) block of investors who control a firm. D) bank that loans funds to finance the start-up of a new company. E) group of underwriters sharing the risk of selling a new issue of securities.

Q: Underwriters generally: A) pay a spread to the issuing firm. B) provide only best efforts underwriting in the U.S. C) accept the risk of selling the new securities in exchange for the gross spread. D) market and distribute an entire issue of new securities within their own firm. E) pass the risk of unsold shares back to the issuing firm via a firm commitment agreement.

Q: Executive Tours has decided to go public and has hired an investment firm to handle the offering. The investment firm is serving as a(n): A) aftermarket specialist. B) venture capitalist. C) underwriter. D) seasoned writer. E) primary investor.

Q: What is a seasoned equity offering? A) An offering of shares by shareholders for repurchase by the issuer B) Shares of stock that have been recommended for purchase by the SEC C) Equity securities held by a company's founder that are being offered for sale to the general public D) Sale of newly issued equity shares by a publicly owned company E) Outstanding shares that are offered for sale by one of a company's original founders

Q: JLK is a partnership that was formed two years ago and has been extremely successful thus far. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called? A) Venture capital offering B) Shelf offering C) Private placement D) Seasoned equity offering E) Initial public offering

Q: Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called? A) Best efforts offer B) Firm commitment offer C) General cash offer D) Rights offer E) Priority offer

Q: What is an issue of securities that is offered for sale to the general public on a direct cash basis called? A) Best efforts underwriting B) Firm commitment underwriting C) General cash offer D) Rights offer E) Herring offer

Q: During a 12-month period, a company is permitted to issue new securities through crowdfunding up to a limit of: A) $200 thousand. B) $500 thousand. C) $1 million. D) $5 million. E) $50 million.

Q: The raising of small amounts of capital from a large number of people is known as: A) a rights offering. B) over allocating. C) a diversified offer. D) crowdfunding. E) a standby offer.

Q: Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called: A) red herrings. B) tombstones. C) Green Shoes. D) registration statements. E) cash offers.

Q: Which one of the following is a preliminary prospectus? A) Tombstone B) Green shoe C) Registration statement D) Rights offer E) Red herring

Q: What is a prospectus? A) A letter issued by the SEC authorizing a new issue of securities B) A report stating that the SEC recommends a new security to investors C) A letter issued by the SEC that outlines the changes required for a registration statement to be approved D) A document that describes the details of a proposed security offering along with relevant information about the issuer E) An advertisement in a financial newspaper that describes a security offering

Q: M&C Merchants is offering $2.5 million of new securities to the general public. Which SEC regulation governs this offering? A) Regulation A B) Regulation C C) Regulation G D) Regulation Q E) Regulation R

Q: What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public? A) Prospectus B) Red herring C) Indenture D) Public disclosure statement E) Registration statement

Q: The Securities and Exchange Commission: A) verifies the accuracy of the information contained in the prospectus. B) publishes red herrings on prospective new security offerings. C) examines the prospectus during the Green Shoe period. D) reviews registration statements to ensure they comply with current laws and regulations. E) determines the final offer price once they have approved the registration statement.

Q: Which one of these describes an exception to the registration filing requirement of the SEC? A) Loans that mature in one year or less B) Issues that have an approved prospectus C) Loans of $10 million or less D) Issues of less than $5 million E) Issues that have received an approved letter of comment

Q: Trevor is the CEO of Harvest Foods, which is a privately held corporation. What is the first step he must take if he wishes to take Harvest Foods public? A) Select an underwriter B) Obtain SEC approval C) Gain board approval D) Prepare a registration statement E) Distribute a prospectus

Q: When selecting a venture capitalist, which one of the following characteristics is probably the least important? A) Financial strength B) Level of involvement C) Contacts D) Exit strategy E) Underwriting experience

Q: Which one of the following statements concerning venture capitalists is correct? A) Venture capitalists always assume management responsibility for the companies they finance. B) Exit strategy is a key consideration when selecting a venture capitalist. C) Venture capitalists limit their services to providing money to start-up firms. D) Most venture capitalists are long-term investors in the companies they finance. E) A venture capitalist normally invests in a new idea from conception through the IPO.

Q: Which one of the following statements concerning venture capital financing is correct? A) Venture capitalists desire shares of common stock but avoid preferred stock. B) Venture capital is relatively easy to obtain. C) Venture capitalists rarely assume active roles in the management of the financed firm. D) Venture capitalists should have key contacts and financial strength. E) Venture capital is relatively inexpensive in today's competitive markets.

Q: Equity financing of new, non-public companies is broadly referred to as: A) singular-risk financing. B) mezzanine-level stock. C) stylized financing. D) private equity. E) exit funding.

Q: It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital. A) 10 B) 15 C) 20 D) 30 E) 40

Q: Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. What is this type of funding called? A) Green shoe funding B) Tombstone underwriting C) Venture capital D) Red herring funding E) Life cycle capital

Q: Suppose ALK Co. needs $13.8 million to build a new assembly line. The target debt-equity ratio is .48. The flotation cost for new equity is 9.6 percent, but the floatation cost for debt is only 5.1 percent. What is the true cost of building the new assembly line after taking flotation costs into account? A) $17,306,191 B) $15,022,949 C) $16,318,414 D) $15,719,310 E) $16,666,667

Q: Yesteryear Productions is considering a project with an initial costs of $318,000. The firm maintains a debt-equity ratio of .60 and has a flotation cost of debt of 5.2 percent and a flotation cost of equity of 11.1 percent. The firm has sufficient internally generated equity to cover the equity cost of this project. What is the initial cost of the project including the flotation costs? A) $349,019 B) $324,324 C) $312,386 D) $318,513 E) $324,706

Q: Western Wear is considering a project that requires an initial investment of $602,000. The firm maintains a debt-equity ratio of .55 and has a flotation cost of debt of 4.9 percent and a flotation cost of equity of 10.2 percent. The firm has sufficient internally generated equity to cover the equity portion of this project. What is the initial cost of the project including the flotation costs? A) $612,652 B) $618,406 C) $686,005 D) $697,747 E) $656,636

Q: You are evaluating a project that requires $324,000 in external financing. The flotation cost of equity is 8.4 percent and the flotation cost of debt is 5.1 percent. What is the initial cost of the project including the flotation costs if you maintain a debt-equity ratio of .35? A) $352,842 B) $349,021 C) $350,439 D) $355,551 E) $346,646

Q: The Daily Brew has a debt-equity ratio of .57. The firm is analyzing a new project that requires an initial cash outlay of $260,000 for equipment. The flotation cost is 9.1 percent for equity and 4.4 percent for debt. What is the initial cost of the project including the flotation costs? A) $302,400 B) $318,924 C) $280,758 D) $256,700 E) $333,333

Q: Deep Hollow Markets has a target capital structure of 35 percent debt, 5 percent preferred stock, and 60 percent common stock. The flotation costs are 8.6 percent for common stock, 6.2 percent for preferred stock, and 3.8 percent for debt. The corporate tax rate is 21 percent. What is the weighted average flotation cost? A) 7.17 percent B) 6.48 percent C) 6.62 percent D) 6.80 percent E) 7.11 percent

Q: Bleakly Enterprises has a capital structure of 56 percent common stock, 4 percent preferred stock, and 40 percent debt. The flotation costs are 3.7 percent for debt, 4.8 percent for preferred stock, and 5.2 percent for common stock. The corporate tax rate is 21 percent. What is the weighted average flotation cost? A) 5.83 percent B) 5.20 percent C) 4.42 percent D) 5.67 percent E) 4.58 percent

Q: Franktown Motors is expected to have an EBIT of $687,400 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $48,000, $7,000, and $42,000, respectively. All cash flow items are expected to grow at 6 percent per year for four years. After Year 5, the CFA* is expected to grow at 2.1 percent indefinitely. The company currently has $3.2 million in debt and 250,000 shares outstanding. The company's WACC is 9.9 percent and the tax rate is 21 percent. What is the price per share of the company's stock? A) $17.82 B) $18.74 C) $12.07 D) $20.12 E) $16.47

Q: River Walk Tours is expected to have an EBIT of $184,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $11,000, $1,500, and $13,000, respectively. All are expected to grow at 6 percent per year for three years. After Year 4, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company's WACC is 9.2 percent and the tax rate is 21 percent. What is the terminal value of the company's cash flows? A) $2,740,563 B) $2,584,798 C) $1,711,052 D) $2,008,051 E) $2,123,008

Q: Decker's is an all-equity financed chain of retail furniture stores. Furniture Fashions produces furniture and is the primary supplier to Decker's. Decker's has a beta of 1.62 as compared to Furniture Fashions' beta of 1.43. The risk-free rate of return is 3.1 percent and the market risk premium is 7.6 percent. What discount rate should Decker's use if it considers a project that involves the manufacturing of furniture? A) 13.97 percent B) 12.92 percent C) 13.50 percent D) 14.08 percent E) 14.54 percent

Q: Sister Pools sells outdoor swimming pools and currently has an aftertax cost of capital of 10.6 percent. Al's Construction builds and sells water features and fountains and has an aftertax cost of capital of 10.2 percent. Sister Pools is considering building and selling its own water features and fountains. The initial cash outlay for this project would be $75,000. The expected net cash inflows are $18,000 a year for seven years. What is the net present value of the Sister Pools project? A) $4,608 B) $12,057 C) $2,262 D) $11,508 E) $5,220

Q: Deep Mining and Precious Metals are separate firms that are both considering a silver mining project. Deep Mining is in the actual mining business and has an aftertax cost of capital of 16.2 percent. Precious Metals is in the precious gem retail business and has an aftertax cost of capital of 13.4 percent. The project under consideration has initial costs of $950,000 and anticipated annual cash inflows of $165,000 a year for 12 years. Which firm(s), if either, should accept this project? A) Deep Mining only B) Precious Metals only C) Both Deep Mining and Precious Metals D) Neither Deep Mining nor Precious Metals E) Cannot be determined without further information

Q: Miller Stores has an overall beta of 1.38 and a cost of equity of 12.7 percent for the company overall. The firm is all-equity financed. Division A within the firm has an estimated beta of 1.52 and is the riskiest of all of the company's operations. What is an appropriate cost of capital for Division A if the market risk premium is 7.4 percent? A) 13.12 percent B) 13.74 percent C) 12.63 percent D) 12.77 percent E) 13.01 percent

Q: The Oil Derrick has an overall cost of equity of 12.7 percent and a beta of 1.13. The firm is financed solely with common stock. The risk-free rate of return is 4.8 percent. What is an appropriate cost of capital for a division within the firm that has an estimated beta of 1.16? A) 12.37 percent B) 12.41 percent C) 12.54 percent D) 12.67 percent E) 12.91 percent

Q: The Bakery is considering a new project it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 1.2 percent to the company's overall cost of capital when evaluating this project. The project has an initial cash outlay of $63,000 and projected cash inflows of $19,000 in Year 1, $34,000 in Year 2, and $28,000 in Year 3. The firm uses 33 percent debt and 67 percent common stock as its capital structure. The company's cost of equity is 13.8 percent while the aftertax cost of debt for the firm is 5.7 percent. What is the projected net present value of the new project? A) −$409 B) $618 C) −$308 D) $427 E) $573

Q: Carson Electronics uses 58 percent common stock and 42 percent debt to finance its operations. The aftertax cost of debt is 5.4 percent and the cost of equity is 15.3 percent. Management is considering a project that will produce a cash inflow of $49,600 in the first year. The cash inflows will then grow at 2.5 percent per year forever. What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project? A) $599,032 B) $573,941 C) $411,406 D) $482,979 E) $541,414

Q: Panelli's is analyzing a project with an initial cost of $139,000 and cash inflows of $74,000 in Year 1 and $86,000 in Year 2. This project is an extension of current operations and thus is equally as risky as the current company. The company uses only debt and common stock to finance its operations and maintains a debt-equity ratio of .39 The aftertax cost of debt is 5.1 percent, the cost of equity is 13.2 percent, and the tax rate is 21 percent. What is the projected net present value of this project? A) $411 B) $1,109 C) −$1,807 D) $938 E) −$2,399

Q: Travis & Sons has a capital structure that is based on 45 percent debt, 5 percent preferred stock, and 50 percent common stock. The pretax cost of debt is 8.3 percent, the cost of preferred is 9.2 percent, and the cost of common stock is 15.4 percent. The tax rate is 21 percent. A project is being considered that is equally as risky as the overall company. This project has initial costs of $287,000 and annual cash inflows of $91,000, $248,000, and $145,000 over the next three years, respectively. What is the projected net present value of this project? A) $116,667 B) $121,802 C) $99,011 D) $104,308 E) $101,488

Q: Silo Mills is an all-equity financed firm that has a beta of 1.18 and a cost of equity of 12.2 percent. The risk-free rate of return is 2.9 percent. The firm is currently considering a project that has a beta of 1.03 and a project life of six years. What discount rate should be assigned to this project? A) 11.33 percent B) 11.02 percent C) 10.62 percent D) 11.84 percent E) 12.09 percent

Q: The Market Outlet is an all-equity financed firm with a beta of 1.08 and a cost of equity of 12.58 percent. The risk-free rate of return is 3.6 percent. What discount rate should the firm assign to a new project that has a beta of 1.22? A) 13.33 percent B) 13.58 percent C) 13.74 percent D) 14.14 percent E) 14.36 percent

Q: Delta Lighting has 24,500 shares of common stock outstanding at a market price of $19 a share. This stock was originally issued at $21 per share. The firm also has a bond issue outstanding with a total face value of $250,000 which is selling for 94 percent of par. The cost of equity is 12.6 percent while the aftertax cost of debt is 5.8 percent. The firm has a beta of 1.33 and a tax rate of 23 percent. What is the weighted average cost of capital? A) 10.07 percent B) 10.32 percent C) 12.36 percent D) 11.29 percent E) 11.47 percent

Q: Granite Works maintains a debt-equity ratio of .58 and has a tax rate of 21 percent. The pretax cost of debt is 8.9 percent. There are 18,000 shares of stock outstanding with a beta of 1.42 and a market price of $23 a share. The current market risk premium is 7.8 percent and the current risk-free rate is 3.1 percent. This year, the firm paid an annual dividend of $1.68 a share and expects to increase that amount by 2 percent each year. Using an average expected cost of equity, what is the weighted average cost of capital? A) 8.44 percent B) 9.78 percent C) 8.96 percent D) 9.13 percent E) 10.06 percent

Q: Kelso's has a debt-equity ratio of .62 and a tax rate of 21 percent. The firm does not issue preferred stock. The cost of equity is 16.3 percent and the aftertax cost of debt is 5.21 percent. What is the weighted average cost of capital? A) 10.96 percent B) 11.67 percent C) 12.06 percent D) 11.38 percent E) 11.57 percent

Q: AZ Products has 140,000 shares of common stock outstanding at a market price of $27 a share. Next year's annual dividend is expected to be $1.43 a share and the dividend growth rate is 2 percent. The company also has 2,500 bonds outstanding with a face value of $1,000 per bond. The bonds have a pretax yield of 7.35 percent and sell at 98.2 percent of face value. The company's tax rate is 21 percent. What is the weighted average cost of capital? A) 8.41 percent B) 6.71 percent C) 7.52 percent D) 6.58 percent E) 6.59 percent

Q: Deep Mines has 43,800 shares of common stock outstanding with a beta of 1.54 and a market price of $51 a share. There are 10,000 shares of 7 percent preferred stock outstanding with a stated value of $100 per share and a market value of $83 a share. The 8 percent semiannual bonds have a face value of $1,000 and are selling at 96 percent of par. There are 5,000 bonds outstanding that mature in 13 years. The market risk premium is 7.5 percent, T-bills are yielding 3.6 percent, and the tax rate is 21 percent. What discount rate should the firm apply to a new project's cash flows if the project has the same risk as the company's typical project? A) 9.59 percent B) 8.72 percent C) 9.17 percent D) 8.28 percent E) 9.30 percent

Q: Dee's Toys has a target debt-equity ratio of .62. Its WACC is 11.3 percent and the tax rate is 21 percent. What is the cost of equity if the aftertax cost of debt is 6.3 percent? A) 15.15 percent B) 15.04 percent C) 14.68 percent D) 14.79 percent E) 14.40 percent

Q: Rosa's has a weighted average cost of capital of 11.73 percent. The cost of equity is 15.8 percent and the pretax cost of debt is 7.6 percent. The tax rate is 21 percent. What is the target debt-equity ratio? A) .89 B) 1.87 C) 1.41 D) .53 E) .71

Q: Cookie Dough Manufacturing has a target debt-equity ratio of .76. Its cost of equity is 15.3 percent, and its pretax cost of debt is 9 percent. What is the WACC given a tax rate of 21 percent? A) 11.76 percent B) 12.78 percent C) 13.11 percent D) 11.48 percent E) 12.53 percent

Q: Mullineaux Corporation has a target capital structure of 46 percent common stock, 5 percent preferred stock, and the balance in debt. Its cost of equity is 15.8 percent, the cost of preferred stock is 8.3 percent, and the aftertax cost of debt is 6.8 percent. What is the WACC given a tax rate of 23 percent? A) 9.89 percent B) 10.43 percent C) 11.02 percent D) 11.38 percent E) 12.17 percent

Q: Central Systems desires a weighted average cost of capital of 12.7 percent. The firm has an aftertax cost of debt of 4.8 percent and a cost of equity of 15.4 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital? A) .37 B) .42 C) .56 D) .34 E) .44

Q: Wayco Industrial Supply has a pretax cost of debt of 8.3 percent, a cost of equity of 14.7 percent, and a cost of preferred stock of 8.9 percent. The firm has 165,000 shares of common stock outstanding at a market price of $33 a share. There are 15,000 shares of preferred stock outstanding at a market price of $43 a share. The bond issue has a face value of $750,000 and a market quote of 101. The company's tax rate is 21 percent. What is the weighted average cost of capital? A) 12.18 percent B) 10.84 percent C) 14.32 percent D) 12.60 percent E) 13.25 percent

Q: Phillips Equipment has 6,500 bonds outstanding that are selling at 96.5 percent of par. Bonds with similar characteristics are yielding 6.7 percent, pretax. The company also has 48,000 shares of 5.5 percent preferred stock and 75,000 shares of common stock outstanding. The preferred stock sells for $64 a share. The common stock has a beta of 1.32 and sells for $41 a share. The preferred stock has a stated value of $100. The U.S. Treasury bill is yielding 2.2 percent and the return on the market is 10.6 percent. The corporate tax rate is 21 percent. What is the weighted average cost of capital? A) 8.09 percent B) 8.64 percent C) 10.18 percent D) 9.30 percent E) 10.56 percent

Q: The Downtowner has 168,000 shares of common stock outstanding valued at $53 a share along with 13,000 bonds selling for $1,008 each. What weight should be given to the debt when the company computes its weighted average cost of capital? A) 46.67 percent B) 65.05 percent C) 51.79 percent D) 59.54 percent E) 48.27 percent

Q: Florida Groves has a $380,000 bond issue outstanding that is selling at 97.4 percent of face value. The firm also has 2,600 shares of preferred stock valued at $61 a share and 37,500 shares of common stock valued at $19 a share. What weight should be assigned to the common stock when computing the weighted average cost of capital? A) 55.75 percent B) 62.20 percent C) 58.75 percent D) 61.03 percent E) 57.40 percent

Q: Theresa's Flower Garden has 650 bonds outstanding that are selling for $1,007 each, 2,100 shares of preferred stock with a market price of $68 a share, and 42,000 shares of common stock valued at $44 a share. What weight should be assigned to the preferred stock when computing the weighted average cost of capital? A) 6.08 percent B) 5.40 percent C) 6.67 percent D) 5.00 percent E) 5.75 percent

Q: The Well Derrick has 6.3 percent preferred stock outstanding that sells for $57 a share. This stock was originally issued at $45 per share and has a stated value of $100 per share. What is the cost of preferred stock if the relevant combined tax rate is 23 percent? A) 11.22 percent B) 10.94 percent C) 10.45 percent D) 11.05 percent E) 11.37 percent

Q: The Dry Well has 6.85 percent preferred stock outstanding with a market value per share of $79, a stated value of $100 per share, and a book value per share of $29. What is the cost of preferred stock? A) 8.50 percent B) 8.88 percent C) 8.67 percent D) 9.29 percent E) 9.00 percent

Q: Grill Works has 6 percent preferred stock outstanding that is currently selling for $49 a share. The market rate of return is 14 percent and the tax rate is 21 percent. What is the cost of preferred stock if its stated value is $100 per share? A) 12.77 percent B) 12.29 percent C) 12.67 percent D) 12.24 percent E) 12.54 percent

Q: Simple Foods has a zero coupon bond issue outstanding that matures in 14 years. The bonds are selling at 56 percent of par value. What is the company's aftertax cost of debt if the combined tax rate is 23 percent? (Use semiannual compounding.) A) 4.48 percent B) 3.13 percent C) 3.22 percent D) 3.73 percent E) 2.88 percent

Q: The outstanding bonds of Tech Express are priced at $1,023 and mature in 13 years. These bonds have a face value of $1,000, a coupon rate of 6.5 percent, and pay interest semiannually. The tax rate is 21 percent. What is the aftertax cost of debt? A) 4.28 percent B) 4.22 percent C) 4.35 percent D) 4.93 percent E) 4.41 percent

Q: Jay's Bakery has a bond issue outstanding that matures in eight years. The bonds pay interest semiannually. Currently, the bonds are quoted at 97.8 percent of face value and carry a coupon rate of 5.7 percent. What is the aftertax cost of debt if the tax rate is 21 percent? A) 4.88 percent B) 4.16 percent C) 5.87 percent D) 4.78 percent E) 6.05 percent