Apple Inc

  1. Which of the following is not a capital component when calculating the WACC? a) long-term debt b) accounts payable c) retained earnings d) preferred stock 2. Schalheim Sisters Inc. has always paid out all of its earnings as dividends, and hence has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity. Its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would reduce the WACC? a) The market risk premium declines b) The floatation costs accociated with issuing new common stock increase c) The company’s beta increases d) Expected inflation increases 3. When working with the CAPM, which of the following factors can be determined with the most precision? a) The market risk premium (RPm) b) The beta coefficient of a relatively safe stock c) The most appropriate risk-free rate (rrf) d) The beta coefficient of “the market,” which is the same as the beta of an average stock 4. Zhao Resorts is currently 100% equity financed. The CFO is considering a recapitalization plan under which the firm would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company’s total assets, nor would it affect the firm’s basic earning power, which is currently 15%. The CFO believes that this recapitalization would reduce the WACC and increase stock price. Which of the following would also be likely to occur if the company goes ahead with the recapitalization plan? a) The company’s net income would increase b) The company’s EPS would decline c) The company’s cost of equity would increase d) The company’s ROE would decline

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 MOS2310

  5. If a typical company uses the same cost of capital to evaluate all projects, what will happen? a) The firm will likely become riskier over time, but its intrinsic...