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Corporate Finance Test Summary Questions and Correct Answers & Latest Updated

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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 ...

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  • August 25, 2024
  • 24
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • corporate finance test summary questions and corr

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  • Corporate Finance
  • Corporate Finance

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1|Page: 2024/2025 Grade A+




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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