Multiple Questions Answers
1. Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $350,000 and currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent. What is the firm’s weighted average cost of capital if the tax rate is 34 percent?
12.69 percent
13.44 percent
14.19 percent
14.47 percent
14.92 percent
2. Which one of the following activities is a source of cash?
Answer
Decreasing long-term debt
Increasing inventory
Repurchasing shares of stock
Increasing fixed assets
Decreasing accounts receivable
3. Which one of the following is a use of cash?
Answer
Issuing new shares of stock
Increasing accounts payable
Decreasing inventory
Decreasing fixed assts
Increasing accounts receivable
4. The weighted average cost of capital is defined as the weighted average of a firm’s:
Answer
return on its investments.
cost of equity and its aftertax cost of debt.
pretax cost of debt and equity securities.
bond coupon rates.
dividend and capital gains yields.
