QUESTION 1

1. EBIT-EPS Analysis provides the following:

   		Operating Breakeven Point
   		Earnings Before Tax
   		Financial Breakeven Point
   		None of the answers provided is correct

QUESTION 2

1. Because of the tax effect, the cost of equity capital is generally lower than the cost of debt capital.

   True

   False

QUESTION 3

1. Western Electric, a firm with a marginal tax rate of 35%, has 21,000 shares of common stock outstanding at a price per share of $61 and an investor required rate of return of 15.6%. The firm also has 11,000 shares $8 preferred stock outstanding at a price of $48 per share. The outstanding debt for Western has a total face value of $275,000 and is currently trading at 104. The yield to maturity on the debt is 8.81%. What is the firms after-tax, weighted average cost of capital?

   		14.52%
   		13.44%
   		14.19%
   		None of the answers provided is correct.

QUESTION 4

1. A firms after-tax weighted average cost of capital must always be determined based on the weighted individual component costs of capital for accounts payable, all long-term debt to include bonds and debentures, preferred stock, common stock, and retained earnings.

   True

   False