Corporate Finance Test Summary Questions and Correct Answers & Latest Updated
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Course
Corporate Finance
Institution
Corporate Finance
On the basis of this information, what is LeCompte's optimal capital structure, and what is
the firm's cost of capital at this optimal capital structure?
Group of answer choices
Ws = 0.8; wd = 0.2; WACC = 10.78%
Ws = 0.7: wa = 0.3; WACC = 9.11%
Ws = 0.9; wa = 0.1; WACC = 11.73%
Ws = 0.5; wd ...
Corporate Finance Test Summary Questions
and Correct Answers & Latest Updated
On the basis of this information, what is LeCompte's optimal capital structure, and what is
the firm's cost of capital at this optimal capital structure?
Group of answer choices
Ws = 0.8; wd = 0.2; WACC = 10.78%
Ws = 0.7: wa = 0.3; WACC = 9.11%
Ws = 0.9; wa = 0.1; WACC = 11.73%
Ws = 0.5; wd = 0.5; WACC = 11.37%
Ws = 0.6; wd = 0.4; WACC = 9.50%
o :## Ws = 0.8; wd = 0.2; WACC = 10.78%
You work for the CEO of a new company that plans to manufacture and sell a new type of
laptop computer. The issue now is how to finance the company, with only equity or with a
mix of debt and equity. Expected operating income is $680,000. The firm's unlevered beta is
0.8. Other data for the firm are shown below. How much higher or lower will the firm's
expected EPS be if it uses some debt rather than only equity, i.e., what is EPSL - EPSU?
Group of answer choices
$2.32
$1.35
$1.74
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,2|Page: 2024/2025 Grade A+
$2.13
$1.94
o :## $1.94
Purcell Farms Inc. has the following data, and it follows the residual dividend model.
Currently, it finances with 15% debt and has a WACC of 12% and before-tax cost of debt of
8%.
Some Purcell family members would like for the dividend payout ratio to be increased. If
Purcell increased its debt ratio, wmen the lirm's reasurer thmks is feasible, by how maeli
could the dividend payout ratio be increased, holding other things constunt?
Capital budget- $4.500.000
Net income (Nd)- $5,000,000
% Debt now- 15%
% Debt after change- 57%
Group of answer choices
45.4%
43.5%
46.1%
37.8%
32.1%
o :## 46.1%
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
, 3|Page: 2024/2025 Grade A+
Serendipity Inc. is re-evaluating its debt level. Its current capital stricture consists of 80%
debt and 20% common equity. its beta is 1.60, and its tax rate is 25%. However. the CFO
think: the company has too much debt, and he is considering moving to a capital structure
with 40% debt and 60% equity. The risk+free rate is 5.0% and the market risk premium is
6.0%. By how much woulduhe capital structure shift change the firm's cost of equity?
Group of answer choices
-7.99%
-6.00%
-7.26%
-6.60%
-5.30%
o :## -6.00%
D. Paul Inc. forecasts a capital budget of $750,000. The CFO wants to maintain a target
capital structure of 45% debt and 55% equity, and she also wants to pay a dividend of
$100.000. D.
Paul's board of directors also mandates that the firm's WACC must not exceed 14% and the
firm's beta must not exceed 1.25. If
the company follows the residual dividend model, how much income must it earn, and what
will its dividend payout ratio be?
Group of answer choices
$471,500;21.21%
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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