Cosmic Corp. has a proposed investment with an initial cost of $84 million. Debt represents 44...

Transcribed Image Text:

Cosmic Corp. has a proposed investment with an initial cost of $84 million. Debt represents 44 percent of the capital structure. The cost of equity is 14.5 percent, the pretax cost of debt is 5.45 percent, and the tax rate is 21 percent. What is the company's WACC? Multiple Choice O O O O O 8.31% 9.00% 10.52% 10.01% 10.29% 7 Banh Mi and More needs $110,000 for a new project. The firm has a target capital structure of 30 percent debt and 70 percent external equity. The flotation cost of debt is 5.25 percent compared to 10.15 percent for equity. What amount does the firm need to raise? 02:43:20 Multiple Choice O O O $120,801.25 $120,455.54 $122,674.09 $118,211.17 $119,497.79 9 02:40:46 Which one of the following outcomes should be the primary appeal of unused debt capacity to a bidder firm? Multiple Choice O O O Debt funding for a golden parachute Provide funding for negative net present value projects Increased funding for the payment of unsustainable dividends Ability to borrow additional funds to increase management bonuses Tax savings resulting from increased interest expense on additional debt 12 8 02:28:38 Which one of the following statements is correct concerning a Chapter 7 bankruptcy? Multiple Choice O O O The claims of creditors are paid prior to the bankruptcy administrative costs. A trustee will assume control of the firm's assets until those assets can be liquidated. The firm generally issues new shares of stock prior to coming out of bankruptcy. Chapter 7 bankruptcies are always involuntary on the part of the firm. A firm reorganizes its operations in an effort to return to being a viable concern. 17 02:21:04 Which one of the following proposes that the value of a levered firm exceeds the value of an unlevered firm by the present value of the tax shield? Multiple Choice MM Proposition I without tax MM Proposition I with and without taxes MM Proposition I with tax MM Proposition II without tax MM Proposition II with tax 20 02:16:11 A firm has an inventory turnover rate of 15.2, a receivables turnover rate of 16.8, and a payables turnover rate of 12.7. How long is the operating cycle? Multiple Choice O O O 45.74 days 33.08 days 53.37 days 42.87 days 39.19 days 25 A firm has sales of $740,920. The cost of goods sold is equal to 65 percent of sales. The firm has an average inventory of $94,700. How many days on average does inventory sit on the shelf prior to being sold? 8 02:08:33 Multiple Choice O O O 46.7 days 1.5 days 28.6 days 7.8 days 71.8 days Cosmic Corp. has a proposed investment with an initial cost of $84 million. Debt represents 44 percent of the capital structure. The cost of equity is 14.5 percent, the pretax cost of debt is 5.45 percent, and the tax rate is 21 percent. What is the company's WACC? Multiple Choice O O O O O 8.31% 9.00% 10.52% 10.01% 10.29% 7 Banh Mi and More needs $110,000 for a new project. The firm has a target capital structure of 30 percent debt and 70 percent external equity. The flotation cost of debt is 5.25 percent compared to 10.15 percent for equity. What amount does the firm need to raise? 02:43:20 Multiple Choice O O O $120,801.25 $120,455.54 $122,674.09 $118,211.17 $119,497.79 9 02:40:46 Which one of the following outcomes should be the primary appeal of unused debt capacity to a bidder firm? Multiple Choice O O O Debt funding for a golden parachute Provide funding for negative net present value projects Increased funding for the payment of unsustainable dividends Ability to borrow additional funds to increase management bonuses Tax savings resulting from increased interest expense on additional debt 12 8 02:28:38 Which one of the following statements is correct concerning a Chapter 7 bankruptcy? Multiple Choice O O O The claims of creditors are paid prior to the bankruptcy administrative costs. A trustee will assume control of the firm's assets until those assets can be liquidated. The firm generally issues new shares of stock prior to coming out of bankruptcy. Chapter 7 bankruptcies are always involuntary on the part of the firm. A firm reorganizes its operations in an effort to return to being a viable concern. 17 02:21:04 Which one of the following proposes that the value of a levered firm exceeds the value of an unlevered firm by the present value of the tax shield? Multiple Choice MM Proposition I without tax MM Proposition I with and without taxes MM Proposition I with tax MM Proposition II without tax MM Proposition II with tax 20 02:16:11 A firm has an inventory turnover rate of 15.2, a receivables turnover rate of 16.8, and a payables turnover rate of 12.7. How long is the operating cycle? Multiple Choice O O O 45.74 days 33.08 days 53.37 days 42.87 days 39.19 days 25 A firm has sales of $740,920. The cost of goods sold is equal to 65 percent of sales. The firm has an average inventory of $94,700. How many days on average does inventory sit on the shelf prior to being sold? 8 02:08:33 Multiple Choice O O O 46.7 days 1.5 days 28.6 days 7.8 days 71.8 days

Answer rating: 100% (QA)

1solution To calculate the Weighted Average Cost of Capital WACC we use the formula WACC E V re D V rd 1 T Where E Market value of equity D Market value of debt V E D Total market value of the firms f... View the full answer