# Uop fin370 final exam | Business & Finance homework help

21) The cost associated with each additional dollar of financing for investment projects is

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 A. [removed] the incremental return B. [removed] the marginal cost of capital C. [removed] risk-free rate D. [removed] beta

22) The XYZ Company is planning a \$50 million expansion. The expansion is to be financed by selling \$20 million in new debt and \$30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?

 A. [removed] 14.0% B. [removed] 9.0% C. [removed] 10.6% D. [removed] 11.5%

23) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt–10%; preferred stock–11%; and common stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?

 A. [removed] 18.0% B. [removed] 13.0% C. [removed] 10.0% D. [removed] 14.2%

24) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers’ present EBIT is \$3 million, and profits available to common shareholders are \$1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to \$1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%?

 A. [removed] \$1.75 B. [removed] \$2.00 C. [removed] \$3.25 D. [removed] \$4.50

25) Zybeck Corp. projects operating income of \$4 million next year. The firm’s income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of \$10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of \$6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. If Zybeck issues common stock this year, what will be the projected EPS next year?

 A. [removed] \$4.94 B. [removed] \$2.96 C. [removed] \$5.33 D. [removed] \$3.20

26) _________ risk is generally considered only a paper gain or loss.

 A. [removed] Transaction B. [removed] Translation C. [removed] Economic D. [removed] Financial

27) Capital markets in foreign countries

 A. [removed] offer lower returns than those obtainable in the domestic capital markets B. [removed] provide international diversification C. [removed] in general are becoming less integrated due to the widespread availability of interest rate and currency swaps D. [removed] have been getting smaller in the past decade

28) Buying and selling in more than one market to make a riskless profit is called

 A. [removed] profit maximization B. [removed] arbitrage C. [removed] international trading D. [removed] an efficient market

29) What keeps foreign exchange quotes in two different countries in line with each other?

 A. [removed] Cross rates B. [removed] Forward rates C. [removed] Arbitrage D. [removed] Spot rates

30) One reason for international investment is to reduce

 A. [removed] portfolio risk B. [removed] price-earnings (P/E) ratios C. [removed] advantages in a foreign country D. [removed] exchange rate risk

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