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Firm Stock Quiz

The debt to equity ratio that is selected by a firm depends

A firm must raise $10 million dollars in funding for a capital investment project. $2 million will be raised by issuing debt with an interest rate of 10% while the remainder will be raised by issuing stocks that will yield a return of 12%. The firm's marginal tax rate is 30%. What is the firm's composite cost of capital?

Assume that investors require a rate of return of 10% to invest in a firm that pays a dividend of $2 per year. The price of the firm's stock is currently based on the assumption that the firm's dividend will remain constant. By how much will the price of the firm's stock increase if the firm begins to grow at a rate of 2% per year and is expected to continue to do so indefinitely?

Which of the following is an internal source of investment funding?

Which of the following is a form of capital as the term is used in economics?

Which of the following is an appropriate way to measure cash flows?

A firm is considering three investment projects which we will refer to as A, B, and C. Each project has an initial cost of $10 million. Investment A offers an expected rate of return of 16%, B of 8%, and C of 12%. The firm's cost of capital is 6% if it borrows $10 million, 10% if it borrows $20 million, and 15% if it borrows $30 million. Which project(s) should the firm invest in?

The net present value of a project is equal to

The debt to equity ratio that is selected by a firm depends

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