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chap 12 and chap 14

Total questions: 27

Worksheet time: 14mins

Name
Class
Date
1.

WACC is:

a)

Cost of all capital

b)

Cost of debt only

c)

Cost of equity only

d)

Cost of venture capital

2.

Assigning higher discount rates to riskier projects is the ___ approach:

a)

Pure play

b)

Subjective

c)

Divisional

d)

Straight WACC

3.

WACC weights are based on:

a)

Market values

b)

Book values

c)

Project financing

d)

Constant values

4.

ROE (DDM) = 12.4%, ROE (CAPM) = 18.7%. Cost of equity used in WACC:

a)

12.4%

b)

18.7%

c)

Avg of 12.4, 13.5, 18.7

d)

Avg of 12.4 and 18.7

e)

13.5%

5.

Cost of preferred stock:

a)

Rises when tax rate falls

b)

Constant over time

c)

Equals dividend yield

d)

Not affected by price

e)

Rises as price rises

6.

Which is true?

a)

Preferred cost unaffected by taxes

b)

Preferred is cheapest capital

c)

Preferred cost constant year to year

d)

Preferred uses CAPM

7.

Least impact on WACC:

a)

Beta

b)

Bond YTM

c)

Dividend growth rate

d)

Stock SD

e)

Tax rate

8.

Correct statement:

a)

Beta for equity, SD for preferred

b)

Lower WACC → better investments

c)

After-tax debt cost rises when bond price rises

d)

Use higher equity estimate

e)

WACC only for firms with preferred stock

9.

Main factor when choosing discount rate:

a)

Debt amount

b)

Preferred stock use

c)

Project risk

d)

Project length

10.

Good project return is ___ WACC:

a)

Independent of

b)

Higher than

c)

Lower than

d)

Equal to

11.

WACC = 8%, subjective ±3%. Correct discount rates:

a)

A: 5%, B: 8%

b)

A: 5%, B: 11%

c)

A: 8%, B: 11%

d)

A: 8%, B: 8%

12.

Payment from earnings to shareholders:

a)

Capital surplus

b)

Retained earnings

c)

Dividend

d)

Stock repurchase

13.

Date dividend is approved:

a)

Declaration

b)

Record

c)

Ex-dividend

d)

Payment

14.

Date shareholders are determined:

a)

Ex-dividend

b)

Record

c)

Payment

d)

Declaration

15.

Date dividend is paid:

a)

Record

b)

Ex-dividend

c)

Declaration

d)

Payment

16.

Extra $0.05 dividend paid one time:

a)

Liquidating

b)

Special

c)

Extra

d)

Regular

e)

Stock

17.

Example of liquidating dividend:

a)

Annual extra cash

b)

Dividend increase

c)

First dividend

d)

Selling assets and distributing cash

e)

One-time large dividend

18.

Stock price drops on:

a)

Declaration date

b)

Record date

c)

Ex-dividend date

d)

Payment date

e)

Day after payment

19.

Ex-dividend = Wed Mar 23. Record date is:

a)

Mon Mar 21

b)

Wed Mar 23

c)

Tue Mar 22

d)

Fri Mar 25

20.

Latest purchase date to receive dividend (ex-date Nov 30):

a)

Thu Nov 26

b)

Fri Nov 27

c)

Mon Nov 30

d)

Wed Nov 25

21.

Susan buys Oct 14, Jake buys Oct 15 (ex-date Oct 15):

a)

Susan only

b)

Jake only

c)

Neither

d)

Both

22.

Stock price on ex-dividend date:

a)

−$1.34

b)

Same price

c)

Drop ≈ after-tax dividend

d)

+$1.34

e)

Increase by after-tax dividend

23.

Buying back shares is called:

a)

Stock dividend

b)

Stock repurchase

c)

Stock split

d)

Reverse split

24.

Buying shares from one shareholder at premium:

a)

Tender offer

b)

Open market

c)

Targeted repurchase

d)

Private issue

25.

Best way to return excess cash with strong signal:

a)

Raise regular dividend

b)

One-time special dividend

c)

Cut dividend

d)

Open market repurchase

26.

Firms smooth dividends to:

a)

Guarantee higher value

b)

Satisfy IRS

c)

Avoid negative signals

d)

Reduce taxes

27.

“D” on Yahoo Finance means:

a)

Payment date

b)

Declaration date

c)

Ex-dividend date

d)

Earnings release