Questions from Corporate Finance


Q: Why might stock repurchases be preferred to dividends?

Why might stock repurchases be preferred to dividends?

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Q: The cost of equity is equal to the: a.

The cost of equity is equal to the: a. Expected market return. b. Rate of return required by stockholders. c. Cost of retained earnings plus dividends. d. Risk the company incurs when financing.

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Q: Dot.Com has determined that it could issue $1,

Dot.Com has determined that it could issue $1,000 face value bonds with an 8 percent coupon paid semiannually and a five-year maturity at $900 per bond. If Dot.Com’s marginal tax rate is 38 percent, i...

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Q: Marx Political Consultants has decided to discontinue all of its business operations

Marx Political Consultants has decided to discontinue all of its business operations. The firm has total debt of $7 million, and the liquidation value of its assets is $10 million. If the book value o...

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Q: When assembling the cash flows to calculate an NPV or IRR,

When assembling the cash flows to calculate an NPV or IRR, the project’s after-tax interest expenses should be subtracted from the cash flows for: a. The NPV calculation, but not the IRR calculation....

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Q: The Gearing Company has an after-tax cost of debt capital

The Gearing Company has an after-tax cost of debt capital of 4 percent, a cost of preferred stock of 8 percent, a cost of equity capital of 10 percent, and a weighted average cost of capital of 7 perc...

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Q: The law firm of Dewey, Cheatem, and Howe has monthly

The law firm of Dewey, Cheatem, and Howe has monthly fixed costs of $100,000, EBIT of $250,000, and depreciation charges on its office furniture and computers of $5,000. Calculate the Cash Flow DOL fo...

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Q: Nynet, Inc., paid a dividend of $4.18

Nynet, Inc., paid a dividend of $4.18 last year. The company’s management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 18.5 percent, what is th...

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Q: Knight Supply Corp. has not grown for the past several years

Knight Supply Corp. has not grown for the past several years and management expects this lack of growth to continue. The firm last paid a dividend of $3.56. If you require a rate of return of 13 perce...

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Q: Ron Santana is interested in buying the stock of First National Bank

Ron Santana is interested in buying the stock of First National Bank. While the bank’s management expects no growth in the near future, Ron is attracted by the dividend income. Last year the bank paid...

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