The process of allocating funds among competing investment opportunities is refe
ID: 2700305 • Letter: T
Question
The process of allocating funds among competing investment opportunities is referred to as: Answer
capital expenditures
initial cash flow analysis
long-term forecasting
capital budgeting
The ratio between the present value of a project%u2019s cash inflows and the present value of its initial investment is called the: Answer
MIRR.
IRR.
PI.
NPV.
Corporate debt as a percentage of GDP grew from around ______ in 1970 to nearly ______ in 2007. Answer
35%; 50%
40%; 55%
45%; 60%
50%; 60%
Of the components shown below, which is least likely to be of value in calculating the cost of preferred stock? Answer
flotation costs per share
book value of a preferred share
dividends per share
initial market price per share
Which of the following is a correct way to calculate degree of combined leverage? Answer
divide DFL by DOL
multiply DOL by DFL
divide DOL by DFL
add DOL and DFL
In calculating the cost of new common stock using the constant dividend growth model, it is important that the __________ are subtracted from the price of the stock. Answer
flotation costs
par value
cost of retained earnings
proceeds of the sale
The cost of debt: Answer
is typically higher than the cost of preferred stock
must be adjusted to an after-tax cost
is higher than the cost of retained earnings
is the lowest component cost because corporations can deduct 70 percent of the interest expense
Explanation / Answer
initial cash flow analysis
IRR
45%; 60%
initial market price per share
divide DFL by DOL
cost of retained earnings
is higher than the cost of retained earnings
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