Solved: 1 Which of the following statements is false a

Financing

1. Which of the following statements is false?

a. Financing total assets is called the financial structure decision.
b. Capital structure is how invested capital is financed.
c. The financial structure is $34,000 if the total assets are $34,000.
d. The invested capital is $50,000 if the total assets are $50,000.

2. If an all-equity firm is expected to earn and pay out a $2.50 dividend forever (in perpetuity),
what is the value of the firm’s stock given a cost of equity of 10 percent?
a. $25.00
b. $25.50
c. $12.50
d. $22.50

3. What is the earnings yield given a $75,000 earnings figure, a $20 market price per share, and
10,000 shares outstanding?
a. 0.625
b. 0.375
c. 0.400
d. 0.275

4. What does a firm have to earn given the following? MV of debt = $60,000; MV of equity =
$140,000; Ke = 10%; Kd = 5%
a. $17,000
b. $3,000
c. $14,000
d. $13,000

5. Which of the following statements is true?

a. When ROE b. When ROE > Ke, management is decreasing the firm’s value.
c. When ROE > Ke, the market price goes above the book value of the investment.
d. When ROE = Ke, the market price goes above the book value of the investment.

6. Which of the following is not an input in the calculation of WACC?

a. Book values of equity and debt
b. Market values of equity and debt
c. Cost of equity
d. Corporate tax rate

7. To increase the stock price of a firm that is assumed to grow at a constant rate g,
a. Increase the cost of equity.
b. Increase the constant growth rate.

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 c. Decrease the dividend payout ratio.
d. Increase the retention ratio.

8. Northern Star Inc. just paid a $3 dividend, which is expected to grow at a constant rate.
Recent EPS is $6 and net income is $250,000. Total equity is $1.25 million and the cost of
equity is 12 percent. What is the share market price?
a. $165
b. $150
c. $50
d. $300

9. Which of the following firms is a growth firm?

a. ROE > Ke
b. ROE c. ROE = Ke
d. Net income = Ke

10. Which of the following statements is false?

a. Star firms have both high PVGO and PVEO.
b. Google and Yahoo are examples of turnarounds.
c. Cash cows could be called growth stocks as well.
d. Utility firms are examples of cash cows.

1 Which of the following statements is false a Financing

ANSWER
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