1) Which of the following legal forms of organization is characterized by limitedliability?
a. Professional partnership
b. Sole proprietorship
c. Corporation
d. Partnership
2) The financial manager may be responsible for any of the following EXCEPT
a. keeping track of quarterly tax payments.
b. analyzing quarterly budget and performance reports.
c. analyzing the effects of more debt on the firm’s capital structure.
d. determining whether to accept or reject a capital asset acquisition.
3) The financial manager’s financing decisions determine
a. both the mix and the type of assets found on the firm’s balance sheet.
b. both the mix and the type of assets and liabilities found on the firm’s balance
sheet.
c. the most appropriate mix of short-term and long-term financing.
d. the proportion of the firm’s earnings to be paid as dividend.
4) Wealth maximization as the goal of the firm implies enhancing the wealth of
a. the firm’s stockholders.
b. the Board of Directors.
c. the firm’s employees.
d. the federal government.
5) The amount earned during the accounting period on each outstanding shareof common stock is called
a. common stock dividend.
b. net profits after taxes.
c. earnings per share.
d. net income.
6) Cash flow and risk are the key determinants in share price. Increased cashflow results in ________, other things remaining the same.
a. an unchanged share price
b. a lower share price
c. an undetermined share price
d. a higher share price
7) A more recent issue that is causing major problems in the business communityis
a. short-term versus long-term financial goals of management.
b. the privatization of ownership.
c. ethical problems.
d. environmental concerns.
8) The implementation of a pro-active ethics program is expected to result in
a. a positive corporate image and increased respect, but is not expected to affect
cash flows.
b. a positive corporate image and increased respect, but is not expected to affect
share price.
c. an increased share price resulting from a decrease in risk, but is not expectedto affect cash flows.
d. a positive corporate image and increased respect, a reduction in risk, and enhancedcash flow resulting in an increase in share price.
9) The Sarbanes-Oxley Act of 2002 was passed in response to
a. the decline in technology stocks.
b. insider trading activities.
c. false disclosures in financial reporting.
d. all of the above
10) The key participants in financial transactions are individuals, businesses,and governments. Individuals are net ________ of funds, and businesses arenet ________ of funds.
a. demanders; suppliers
b. purchasers; sellers
c. suppliers; demanders
d. users; providers
11) The over-the-counter (OTC) market is
a. an intangible market for unlisted securities.
b. a place where securities are bought and sold.
c. the New York Stock Exchange.
d. an organized stock exchange.
12) The two key financial markets are
a. primary market and secondary market.
b. capital market and s ...
Science 7 - LAND and SEA BREEZE and its Characteristics
Legal Forms of Organization Quiz
1. 1) Which of the following legal forms of organization is
characterized by limitedliability?
a. Professional partnership
b. Sole proprietorship
c. Corporation
d. Partnership
2) The financial manager may be responsible for any of the
following EXCEPT
a. keeping track of quarterly tax payments.
b. analyzing quarterly budget and performance reports.
c. analyzing the effects of more debt on the firm’s capital
structure.
d. determining whether to accept or reject a capital asset
acquisition.
3) The financial manager’s financing decisions determine
a. both the mix and the type of assets found on the firm’s
balance sheet.
b. both the mix and the type of assets and liabilities found on
the firm’s balance
sheet.
c. the most appropriate mix of short-term and long-term
financing.
d. the proportion of the firm’s earnings to be paid as dividend.
4) Wealth maximization as the goal of the firm implies
enhancing the wealth of
a. the firm’s stockholders.
b. the Board of Directors.
c. the firm’s employees.
2. d. the federal government.
5) The amount earned during the accounting period on each
outstanding shareof common stock is called
a. common stock dividend.
b. net profits after taxes.
c. earnings per share.
d. net income.
6) Cash flow and risk are the key determinants in share price.
Increased cashflow results in ________, other things remaining
the same.
a. an unchanged share price
b. a lower share price
c. an undetermined share price
d. a higher share price
7) A more recent issue that is causing major problems in the
business communityis
a. short-term versus long-term financial goals of management.
b. the privatization of ownership.
c. ethical problems.
d. environmental concerns.
8) The implementation of a pro-active ethics program is
expected to result in
a. a positive corporate image and increased respect, but is not
expected to affect
cash flows.
b. a positive corporate image and increased respect, but is not
3. expected to affect
share price.
c. an increased share price resulting from a decrease in risk, but
is not expectedto affect cash flows.
d. a positive corporate image and increased respect, a reduction
in risk, and enhancedcash flow resulting in an increase in share
price.
9) The Sarbanes-Oxley Act of 2002 was passed in response to
a. the decline in technology stocks.
b. insider trading activities.
c. false disclosures in financial reporting.
d. all of the above
10) The key participants in financial transactions are
individuals, businesses,and governments. Individuals are net
________ of funds, and businesses arenet ________ of funds.
a. demanders; suppliers
b. purchasers; sellers
c. suppliers; demanders
d. users; providers
11) The over-the-counter (OTC) market is
a. an intangible market for unlisted securities.
b. a place where securities are bought and sold.
c. the New York Stock Exchange.
d. an organized stock exchange.
4. 12) The two key financial markets are
a. primary market and secondary market.
b. capital market and secondary market.
c. primary market and money market.
d. money market and capital market.
13) Securities exchanges create efficient markets that do all of
the following
EXCEPT
a. ensure a market in which the price reflects the true value of
the security.
b. control the supply and demand for securities through price.
c. allocate funds to the most productive uses.
d. allow the price to be determined by supply and demand of
securities.
14) The tax deductibility of various expenses such as general
and administrativeexpenses ________ their after-tax cost.
a. reduces
b. has no effect on
c. has an undetermined effect on
d. increases
5. 15) The dividend exclusion for corporations receiving dividends
from another
corporation has resulted in
a. stock investments being relatively less attractive, relative to
bond investmentsmade by one corporation in another
corporation.
b. stock investments being relatively more attractive relative to
bond investmentsmade by one corporation in another
corporation.
c. a lower cost of equity for the corporation paying the
dividend.
d. a higher relative cost of bond-financing for the corporation
paying the dividend.
16) The rule-setting body, which authorizes generally accepted
accounting principlesis
a. FASB.
b. Federal Reserve System.
c. SEC.
d. GAAP.
17) Candy Corporation had pretax profits of $1.2 million, an
average tax rateof 34 percent, and it paid preferred stock
dividends of $50,000. There were100,000 shares outstanding
and no interest expense. What were Candy
Corporation’searnings per share?
a. $4.52
b. $7.59
6. c. $7.42
d. $3.91
18) The analyst should be careful when evaluating a ratio
analysis that
a. the dates of the financial statements being compared are the
same time.
b. pre-audited statements are used.
c. neither A nor B.
d. both A and B.
19) The ________ is useful in evaluating credit and collection
policies.
a. current asset turnover
b. current ratio
c. average collection period
d. average payment period
20) The ________ ratio may indicate poor collections
procedures or a lax creditpolicy.
a. average collection period
b. average payment period
c. inventory turnover
d. quick
7. 21) ________ are especially interested in the average payment
period, since itprovides them with a sense of the bill-paying
patterns of the firm.
a. Lenders and suppliers
b. Borrowers and buyers
c. Stockholders
d. Customers
22) If the inventory turnover is divided into 365, it becomes a
measure of
a. sales turnover.
b. the average collection period.
c. sales efficiency.
d. the average age of the inventory.
23) The ________ ratio may indicate that the firm will not be
able to meet interestobligations due on outstanding debt.
a. times interest earned
b. return on total assets
c. net profit margin
d. debt
24) The ________ measures the percentage of profit earned on
each sales dollarbefore interest and taxes.
a. net profit margin
b. operating profit margin
c. earnings available to common shareholders
d. gross profit margin
8. 25) In the DuPont system, the return on total assets (asset) is
equal to
a. (net profit margin) × (fixed asset turnover).
b. (return on equity) × (total asset turnover).
c. (return on equity) × (financial leverage multiplier).
d. (net profit margin) × (total asset turnover).
26) The financial leverage multiplier is an indicator of how
much ________ a
corporation is utilizing.
a. long-term debt
b. total debt
c. operating leverage
d. total assets
27) Allocation of the historic costs of fixed assets against the
annual revenue theygenerate is called
a. amortization.
b. net profits.
c. depreciation.
d. gross profits.
28) The cash flows from operating activities section of the
statement of cashflows considers
a. interest expense.
9. b. stock repurchases.
c. dividends paid.
d. cost of raw materials.
29) The key aspects of the financial planning process are
a. cash planning and investment planning.
b. cash planning and profit planning.
c. investment planning and profit planning.
d. cash planning and financing.
30) A firm has projected sales in May, June, and July of $100,
$200, and $300,
respectively. The firm makes 20 percent of sales for cash and
collects thebalance one month following the sale. The firm’s
total cash receipts in July
a. are $200.
b. are $220.
c. are $180.
d. cannot be determined with the information provided.
31) A projected excess cash balance for the month may be
a. financed with long-term securities.
b. invested in marketable securities.
c. financed with short-term securities.
d. invested in long-term securities.
32) In the month of August, a firm had total cash receipts of
$10,000, total cashdisbursements of $8,000, depreciation
expense of $1,000, a minimum cash
10. balance of $3,000, and a beginning cash balance of $500. The
excess cash
balance (required financing) for August is
a. required total financing of $500.
b. required total financing of $2,500.
c. excess cash balance of $500.
d. excess cash balance of $5,500.
33) The key inputs for preparing pro forma income statements
using the simplifed approaches are the
a. sales forecast for the preceding year and financial statements
for the comingyear.
b. sales forecast for the coming year and the cash budget for the
preceding year.
c. cash budget for the coming year and sales forecast for the
preceding year.
d. sales forecast for the coming year and financial statements
for the precedingyear.
34) The ________ method of developing a pro forma balance
sheet estimates valuesof certain balance sheet accounts while
others are calculated. In thismethod, the firm’s external
financing is used as a balancing, or plug, figure.
a. cash
b. accrual
c. judgmental
d. percent-of-sales
11. 35) The strict application of the percent-of-sales method to
prepare a pro formaincome statement assumes the firm has no
fixed costs. Therefore, the use ofthe past cost and expense
ratios generally tends to ________ profits when sales are
increasing.
a. have no effect on
b. accurately predict
c. overstate
d. understate
36) A firm plans to retire outstanding bonds in the next
planning period. Thestatements that will be affected are the
a. pro forma balance sheet and cash budget.
b. pro forma income statement and pro forma balance sheet.
c. cash budget and statement of retained earnings.
d. pro forma income statement, pro forma balance sheet, cash
budget, andstatement of retained earnings.
37) Utilizing past cost and expense ratios (percent-of-sales
method) when preparingpro forma financial statements will tend
to
a. overstate profits when sales are increasing.
b. neither understate nor overstate profits.
c. understate profits when sales are increasing.
d. understate profits when sales are decreasing.
12. 38) In a period of rising sales utilizing past cost and expense
ratios (percent of-
sales method), when preparing pro forma financial statements
and planning
financing, will tend to
a. overstate retained earnings and understate the financing
needed.
b. overstate retained earnings and overstate the additional
financing needed.
c. understate retained earnings and overstate the financing
needed.
d. understate retained earnings and understate the additional
financing needed.
39) For positive interest rates, the future value interest factor is
a. sometimes negative.
b. always greater than 1.0.
c. never greater than 25.
d. always less than 0.
40) The amount of money that would have to be invested today
at a given interest
rate over a specified period in order to equal a future amount is
called
a. present value.
b. future value.
c. future value interest factor.
d. present value interest factor.
13. 41) The present value of $200 to be received 10 years from
today, assuming anopportunity cost of 10 percent, is
a. $200.
b. $50.
c. $518.
d. $77.
42) The future value of a dollar ________ as the interest rate
increases and________ the farther in the future an initial
deposit is to be received.
a. increases; increases
b. decreases; increases
c. decreases; decreases
d. increases; decreases
43) The present value of a $25,000 perpetuity at a 14 percent
discount rate is
a. $350,000.
b. $285,000.
c. $178,571.
d. $219,298.
44) The future value of $100 received today and deposited in an
account for fouryears paying semiannual interest of 6 percent is
a. $450.
14. b. $889.
c. $134.
d. $126.
45) The future value of an annuity of $1,000 each quarter for 10
years, depositedat 12 percent compounded quarterly is
a. $75,401.
b. $17,549.
c. $93,049.
d. $11,200.
46) Adam borrows $4,500 at 12 percent annually compounded
interest to berepaid in four equal annual installments. The
actual end-of-year payment is
a. $2,641.
b. $1,125.
c. $942.
d. $1,482.
Answer is 1210
47) Ashley owns stock in a company which has consistently
paid a growing dividendover the last five years. The first year
Ashley owned the stock, she received$1.71 per share and in the
fifth year, she received $2.89 per share.
What is the growth rate of the dividends over the last five
years?
a. 7 percent
b. 5 percent
15. c. 14 percent
d. 12 percent
48) Julian was given a gold coin originally purchased for $1 by
his great-grandfather50 years ago. Today the coin is worth
$450. The rate of return realizedon the sale of this coin is
approximately equal to
a. 13%.
b. 50%.
c. 7.5%.
d. cannot be determined with given information.
49) Aunt Bertha borrows $19,500 from the bank at 8 percent
annually compoundedinterest to be repaid in 10 equal annual
installments. The interestpaid in the third year is ________.
a. $1,947.10
b. $1,336.00
c. $2,906.11
d. $1,560.14
50) What annual rate of return would Grandma Zoe need to earn
if she deposits$1,000 per month into an account beginning one
month from today in orderto have a total of $1,000,000 in 30
16. years?
a. 5.98%
b. 5.28%
c. 6.23%
d. 4.55%
51) ________ is the chance of loss or the variability of returns
associated with agiven asset.
a. Value
b. Probability
c. Risk
d. Return
52) The goal of an efficient portfolio is to
a. minimize profit in order to minimize risk.
b. maximize risk for a given level of return.
c. maximize risk in order to maximize profit.
d. minimize risk for a given level of return.
53) Combining negatively correlated assets having the same
expected returnresults in a portfolio with ________ level of
expected return and ________level of risk.
a. the same; a lower
b. a lower; a higher
c. a higher; a lower
d. the same; a higher
54) The purpose of adding an asset with a negative or low
positive beta is to
17. a. reduce risk.
b. increase profit.
c. reduce profit.
d. increase risk.
55) The portion of an asset’s risk that is attributable to firm-
specific, randomcauses is called
a. unsystematic risk.
b. systematic risk.
c. nondiversifiable risk.
d. none of the above
56) ________ risk represents the portion of an asset’s risk that
can be eliminatedby combining assets with less than perfect
positive correlation.
a. Systematic
b. Total
c. Nondiversifiable
d. Diversifiable
57) Nico owns 100 shares of stock X which has a price of $12
per share and 200shares of stock Y which has a price of $3 per
share. What is the proportion ofNico’s portfolio invested in
stock X?
a. 50%
b. 77%
c. 67%
d. 33%
18. 58) As risk aversion increases
a. investors’ required rate of return will decrease.
b. a firm’s beta will decrease.
c. a firm’s beta will increase.
d. investors’ required rate of return will increase.
59) The ________ rate of interest creates equilibrium between
the supply of savingsand the demand for investment funds.
a. inflationary
b. risk-free
c. real
d. nominal
60) The ________ rate of interest is typically the required rate
of return on athree-month U.S. Treasury bill.
a. premium
b. real
c. nominal
d. risk-free
61) An upward-sloping yield curve that indicates generally
cheaper short-termborrowing costs than long-term borrowing
costs is called
a.flat yield curve.
b. normal yield curve.
c. inverted yield curve.
d. none of the above.
19. 62) The cost of long-term debt generally ________ that of
short-term debt.
a. has no relation to
b. is less than
c. is equal to
d. is greater than
63) ________ is a paid individual, corporation, or commercial
bank trust departmentthat acts as a third party to a bond
indenture to ensure that the issuerdoes not default on its
contractual responsibilities to the bondholders.
a. A trustee
b. A bond rating agency
c. A bond issuer
d. An investment banker
64) An example of a standard debt provision is the
a. constraints on subsequent borrowing.
b. requirement to pay taxes and other liabilities when due.
c. limiting of the corporation’s annual cash dividend payments.
d. restricting the corporation from disposing of fixed assets.
65) Another name for a deeply discounted bond that pays no
coupon interest is a
a. floating rate bond.
b. junk bond.
c. subordinated debenture.
20. d. zero coupon bond.
66) A debenture is
a. a secured bond that is secured by unspecified assets.
b. a lengthy legal document stating the conditions under which a
bond has beenissued.
c. an unsecured bond that only creditworthy firms can issue.
d. a bond secured by specific asset.
67) In utilizing a ________ the issuer can annually deduct the
current year’s interestaccrual without having to actually pay the
interest until the bond matures.
a. junk bond
b. extendible notes
c. zero coupon bond
d. floating rate bond
68) The less certain a cash flow, the ________ the risk, and the
________ thepresent value of the cash flow.
a. higher; higher
b. lower; lower
c. higher; lower
d. lower; higher
69) JiaHua Enterprises wants to issue sixty 20-year, $1,000 par
value, zero couponbonds. If each bond is priced to yield 7
percent, how much will JiaHua receive (ignoring issuance costs)
when the bonds are first sold?
21. a. $12,393
b. $15,505
c. $18,880
d. $11,212
e. $20,000
70) If bankruptcy were to occur, stockholders would have prior
claim on assetsover
a. preferred stockholders.
b. unsecured creditors.
c. secured creditors.
d. no one.
71) The advantages of issuing preferred stock from the common
stockholder’sperspective include all of the following EXCEPT
a. increased leverage.
b. flexibility.
c. use in mergers.
d. seniority of preferred stockholder’s claim over common
stockholders.
72) All of the following features may be characteristic of
preferred stock EXCEPT
a. convertible.
b. no maturity date.
c. callable.
d. tax-deductible dividends.
73) Preferred stockholders
22. a. do have preference over bondholders in the case of
liquidation.
b. do not have preference over bondholders in the case of
liquidation.
c. do not have preference over common stockholders in the case
of liquidation.
d. two of the above are true statements
74) The opportunity for management to purchase a certain
number of shares oftheir firm’s common stock at a specified
price over a certain period of timeis a
a. stock option.
b. stock right.
c. pre-emptive right.
d. warrant.
75) Stock rights provide the stockholder with
a. cumulative voting privileges.
b. the opportunity to receive extraordinary earnings.
c. the right to elect the board of directors.
d. certain purchase privileges of additional stock shares in
direct proportionbased on their number of owned shares.
76) Tangshan China Company’s stock is currently selling for
$80.00 per share.
The expected dividend one year from now is $4.00 and the
23. required return is
13 percent. What is Tangshan’s dividend growth rate assuming
that dividends
are expected to grow at a constant rate forever?
a. 9%
b. 10%
c. 8%
d. 11%
77) Which of the following valuation methods is superior to the
others in the listsince it considers expected earnings?
a. P/E multiple
b. liquidation value
c. book value
d. present value of the interest
78) Nico Corporation expects to generate free-cash flows of
$200,000 per yearfor the next five years. Beyond that time, free
cash flows are expected to growat a constant rate of 5 percent
per year forever. If the firm’s average cost ofcapital is 15
24. percent, the market value of the firm’s debt is $500,000,
andNico has a half million shares of stock outstanding, what is
the value ofNico’s stock?
a. $0.00
b. $1.43
c. $3.43
d. $2.43
79) A capital expenditure is all of the following EXCEPT
a. an outlay for current asset expansion.
b. an outlay made for the earning assets of the firm.
c. commonly used to expand the level of operations.
d. expected to produce benefits over a period of time greater
than one year.
80) ________ projects have the same function; the acceptance
of one ________the others from consideration.
a. Mutually exclusive; eliminates
b. Replacement; does not eliminate
c. Capital; eliminates
d. Independent; does not eliminate
81) In international capital budgeting decisions, political risks
can be minimizedusing all of the following strategies EXCEPT
25. a. structuring the financing of such investments as equity rather
than as debt.
b. structuring the financing of such investments as debt rather
than as equity.
c. structuring the investment as a joint venture and selecting
well-connectedlocal partner.
d. none of the above
82) When evaluating a capital budgeting project, the change in
net working capitalmust be considered as part of
a. the initial investment.
b. the incremental operating cash inflows.
c. the operating cash inflows.
d. the operating cash outflows.
83) The tax treatment regarding the sale of existing assets that
are sold for theirbook value results in
a. recaptured depreciation taxed as ordinary income.
b. no tax benefit or liability.
c. an ordinary tax benefit.
d. a capital gain tax liability and recaptured depreciation taxed
as ordinary income.
84) A corporation is selling an existing asset for $1,000. The
asset, when purchased,cost $10,000, was being depreciated
under MACRS using a five yearrecovery period, and has been
depreciated for four full years. If the assumed tax rate is 40
percent on ordinary income and capital gains, the taxeffect of
this transaction is
26. a. $3,600 tax liability.
b. $280 tax benefit.
c. $0 tax liability.
d. $1,100 tax liability.
85) Unsophisticated capital budgeting techniques do not
a. examine the size of the initial outlay.
b. take into account an unconventional cash flow pattern.
c. explicitly consider the time value of money.
d. use net profits as a measure of return.
86) Should Tangshan Mining company accept a new project if
its maximum paybackis 3.5 years and its initial after tax cost is
$5,000,000 and it is expectedto provide after-tax operating cash
inflows of $1,800,000 in year 1,$1,900,000 in year 2, $700,000
in year 3 and $1,800,000 in year 4?
a. Yes
b. No
c. It depends
d. None of the above
87) The minimum return that must be earned on a project in
order to leave thefirm’s value unchanged is
a. the compound rate.
b. the cost of capital.
c. the interest rate.
d. the internal rate of return.
27. 88) A firm would accept a project with a net present value of
zero because
a. the project would enhance the wealth of the firm’s owners.
b. the return on the project would be positive.
c. the project would maintain the wealth of the firm’s owners.
d. the return on the project would be zero.
89) What is the NPV for the following project if its cost of
capital is 15 percentand its initial after tax cost is $5,000,000
and it is expected to provideafter-tax operating cash inflows of
$1,800,000 in year 1, $1,900,000 in year2, $1,700,000 in year 3
and $1,300,000 in year 4?
a. ($137,053)
b. $371,764
c. $1,700,000
d. None of the above
90) What is the NPV for the following project if its cost of
capital is 0 percent andits initial after tax cost is $5,000,000 and
it is expected to provide after taxoperating cash inflows of
$1,800,000 in year 1, $1,900,000 in year 2,$1,700,000 in year 3
and $1,300,000 in year 4?
a. $1,700,000
28. b. $137,053
c. $371,764
d. None of the above
91) The ________ is the compound annual rate of return that the
firm will earn ifit invests in the project and receives the given
cash inflows.
a. internal rate of return
b. cost of capital
c. discount rate
d. opportunity cost
92) When evaluating projects using internal rate of return,
a. the discount rate and magnitude of cash flows do not affect
internal rate ofreturn.
b. projects having higher early-year cash flows tend to be
preferred at lowerdiscount rates.
c. projects having higher early-year cash flows tend to be
preferred at higherdiscount rates.
d. projects having lower early-year cash flows tend to be
preferred at higher
discount rates.
93) Diagrams that permit the mapping of the various investment
decision alternativesand payoffs as well as their probabilities of
occurrence are called
a. multiple regression analysis.
b. simulations.
c. decision trees.
d. sensitivity analysis.
29. 94) The advantage of using simulation in the capital budgeting
process is
a. the availability of a continuum of risk-return trade-offs which
may be used asthe basis for decision-making.
b. that it generates a continuum of risk-return trade-offs rather
than a single pointestimate.
c. dependability of predetermined probability distributions.
d. ease of calculation.
95) Breakeven cash inflow refers to
a. the minimum level of cash inflow necessary for a project to
be acceptable,that is, IRR < cost of capital.
b. the minimum level of cash inflow necessary for a project to
be acceptable,that is, NPV > $0.
c. the minimum level of cash inflow necessary for a project to
be acceptable,that is, NPV < $0.
d. none of the above is correct
96) A behavioral approach that evaluates the impact on the
firm’s return of simultaneous
changes in a number of project variables is called
a. simulation analysis.
b. scenario analysis.
c. sensitivity analysis.
d. none of the above
30. 97) The ________ reflects the return that must be earned on the
given project tocompensate the firm’s owners adequately
according to the project’s variabilityof cash flows.
a. internal rate of return
b. cost of capital
c. average rate of return
d. risk-adjusted discount rate
98) An approach to capital rationing that involves graphing
project returns indescending order against the total dollar
investment to determine the groupof acceptable projects is
called the
a. net present value approach.
b. the internal rate of return approach.
c. the profitability index approach.
d. the payback approach.
99) The cost to a corporation of each type of capital is
dependent upon
a. the risk-free rate of each type of capital plus the business risk
and the financialrisk of the firm.
b. the risk-free rate of each type of capital plus the business risk
of the firm.
c. the risk-free rate of each type of capital plus the financial
risk of the firm.
d. the risk-free rate of bonds plus the business risk of the firm.
31. 100) The before-tax cost of debt for a firm which has a 40
percent marginal tax rateis 12 percent. The after-tax cost of debt
is
a. 12 percent.
b. 7.2 percent.
c. 4.8 percent.
d. 6.0 percent.
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