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BUS 401 Week 3 Quiz
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1. Jiffy Wax Corp. Can sell common stock for $15 per share and its investors require a 14 % return. However, the administrative or flotation costs associated with selling the stock amount to $2.40 per share. What is the cost of capital for Jiffy Wax if the corporation raises money by selling preferred stock?
1. 30.00%
2. 21.50%
3. 16.67%
4. 14.00%
2.Kinslow Manufacturing Company paid a dividend yesterday of $2.50 per share. The dividend is expected to grow at a constant rate of 5% per year. The price of Kinslow’s common stock today is $25 per share. If Kinslow decides to issue new common stock, flotation costs will equal $2.00 per share. Key’s marginal tax rate is 34 %. Based on the above information, the cost of retained earnings is _________
1. 16.14%
2. 15.50%
3. 15.00%
4. 10.55 %
3. Nickel Industries is considering the purchase of a new machine that will cost $178,000, plus an additional $12,000 to ship and install. The new machine will have a 5 year useful life and will be depreciated using the straight line method. The machine is expected to generate new sales of $85,000 per year and is expected to increase operating costs by $ 10,000 annually. Nickel’s income tax rate is 40%. What is the projected incremental cash flow of the machine or year 1?
1. $54,800
2. $60,200
3. $66,350
4. $68,200
4. Nargo Inc. Wants to replace a 7 year old machine with a new machine that is more efficient. The old machine cost $50,000 when new and has a current book value of $10,000. Margo can sell the machine to a foreign buyer for $12,000. Margo’s tax rate is 30%. The effect of the sale of...