CMA Part 2 Section B

An investor is evaluating the common stock of a technology company which has a beta of 1.8. The expected return for the securities market as a whole is 8%. The investor could receive a risk-free return of 2% on a U.S. Treasury bill. Based on the capital asset pricing model (CAPM), what is the expected risk adjusted return of the technology company’s common stock?

Frasier Products has been growing at a rate of 10% per year and expects this growth to continue and produce earnings per share of $4.00 next year. The company has a dividend payout ratio of 35% and a beta value of 1.25. If the risk-free rate is 7% and the return on the market is 15%, what is the expected current market value of Frasier’s common stock?

Which one of the following would have the least impact on a company’s beta value?

If Dexter Industries has a beta value of 1.0, then its

Which one of the following provides the best measure of interest rate risk for a corporate bond?

The term “beta” can best be described as the

The yield curve shows the relationship between bond yields that differ by the

The call provision in some bond indentures allows

Protective clauses set forth in an indenture are known as

A requirement specified in an indenture agreement which states that a company cannot acquire or sell major assets without prior creditor approval is known as a

Which one of the following situations would prompt a company to issue debt, as opposed to equity, the next time it raises external capital?

Which one of the following is a debt instrument that generally has a maturity of ten years or more?

James Hemming, the chief financial officer of a mid-western machine parts manufacturer, is considering splitting the company’s stock, which is currently selling at $80.00 per share. The stock currently pays a $1.00 per share dividend. If the split is two-for-one, Mr. Hemming may expect the post-split price to be

Which one of the following best describes the record date as it pertains to common stock?

Preferred stock may be retired through the use of any one of the following except a

All of the following are characteristics of preferred stock except that

Thomas Company’s capital structure consists of 30% long-term debt, 25% preferred stock, and 45% common equity. The cost of capital for each component is shown below.

Long-term debt                                8%

Preferred stock                                11%

Common equity                              15%

If Thomas pays taxes at the rate of 40%, what is the company’s after-tax weighted average cost of capital?

Cox Company has sold 1,000 shares of $100 par, 8% preferred stock at an issue price of $92 per share. Stock issue costs were $5 per share. Cox pays taxes at the rate of 40%. What is Cox’s cost of preferred stock capital?

In calculating the component costs of long-term funds, the appropriate cost of retained earnings, ignoring flotation costs, is equal to

The Hatch Sausage Company is projecting an annual growth rate for the foreseeable future of 9%. The most recent dividend paid was $3.00 per share. New common stock can be issued at $36 per share. Using the constant growth model, what is the approximate cost of capital for retained earnings?