Teall Development Company

1. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from retained earnings? (Points : 2)


Question 2. 2. Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach? (Points : 2)




 

Question 3. 3. Anderson Systems is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that if a project’s expected NPV is negative, it should be rejected.
WACC: 9.00%
Year 0 1 2 3
Cash flows -$1,000 $500 $500 $500 (Points : 2)




 

Question 4. 4. A company’s perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm’s cost of preferred stock? (Points : 2)




 

Question 5. 5. DeLong Inc. has fixed operating costs of $470,000, variable costs of $2.80 per unit produced, and its products sell for $4.00 per unit. What is the company’s breakeven point, i.e., at what unit sales volume would income equal costs? (Points : 2)




 

Question 6. 6. Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? (Points : 2)




 

Question 7. 7. For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly common equity. (Points : 2)


 

Question 8. 8. Which of the following statements is CORRECT? (Points : 2)




 

Question 9. 9. The cost of equity raised by retaining earnings can be less than, equal to, or greater than the cost of external equity raised by selling new issues of common stock, depending on tax rates, flotation costs, the attitude of investors, and other factors. (Points : 2)


 

Question 10. 10. Which of the following statements is CORRECT? (Points : 2)




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