1. If sums of squares statistics are calculated for shoppers at three different retail outlets, what
statistic will indicate the variability among those at each outlet? (Points : 1)
The sum of squares total.
The sum of squares across groups.
The sum of squares between.
The sum of squares within.
2. Four different groups of employees are randomly selected from a common population for a
study of differences in the impact of a wage increase. Why will there be differences even
before the incentive is applied? (Points : 1) Sampling error
Sampling bias
A non-normal population
Unequal sample sizes
Solution
1) The sum of squares between
2) A non-normal population
3) The degrees of freedom for the problem
4) The distribution of sample means
5) Which groups were significantly different from which
6) Powerful tests minimize type II errors
7) he values are estimated from sample data
8) 2
9) A problem that has multiple independent variable
10) Each eta value explains some of the same variance as the others..
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1. If the cost of new common equity is higher than the cost of inter.pdf
1. 1. If the cost of new common equity is higher than the cost of internal equity, why would a firm
choose to issue new common stock?
2. Calculate all MCC break points for the following information:
Total assets = $1,500,000
Total debt = $600,000
Total equity = $900,000
kd is 10% up to $500,000; 11% after $500,000
ks is 13% up to $100,000; 14% after $100,000
3. Your firm’s ks is 10%, the cost of debt is 6% before taxes, and the tax rate is 40%. Given the
following balance sheet, calculate the firm’s after tax WACC:
Total assets = $25,000
Total debt = $15,000
Total equity = $10,000
4. Explain the difference between WACC and MCC.
5. What determines whether to use the dividend growth model approach or the CAPM approach
to calculate the cost of equity?
Solution
1. The cost of internal common equity would be equal to the required rate of return of the
existing shareholders’. Which computed by using dividend discount model and Capital Assets
Pricing Model, and in computation of cost internal common equity the cost of issue or floatation
cost is excluded. Therefore, the cost external equity would be higher than the cost internal
common equity.
If a firm issue new common equity then its MWCC (Marginal Weighted Cost of Capital)
increases and firm accept only those projects which have IRR (Internal Rate of Return) higher
than the MWCC. This helps the firm to add more dollars for shareholders maximization.
Therefore, firm prefer new common equity over internal equity.
