HELLO, PLEASE SELECT THE CORRECT ANSWER:
1. If a firm wants to maintain its present ratio of debt
to equity, its present dividend payout ratio, and does not want to
sell any new equity, the firm's growth rate in sales and assets
must be less than or equal to its:
A. dividend payout ratio.
B. retention ratio.
C. sustainable growth rate.
D. growth rate with no external financing.
E. projected sales growth rate.
2. All else the same, the level of external financing
needed (EFN) increases with increases in the:
A. Profit margin.
B. Retention ratio.
C. Accounts receivable turnover ratio.
D. Capital intensity ratio.
E. Fixed asset utilization ratio.
3. A publicly traded Toronto firm has decided to issue 1
million new shares of common stock at the current market price of
$10 per share. An underwriting syndicate pays the firm $9.3 million
for the entire issue and then markets the shares at $10 each. This
is an example of a(n):
A. Indirect cost.
B. Lock-up agreement pricing.
C. Firm commitment underwriting.
D. A best-efforts underwriting.
E. An underpricing situation.
4. Which of the following apply to levered firms but not
to unlevered firms?
I. Financial risk
II. Systematic risk
III. Business risk
IV. Interest tax shield
A. I only
B. I and IV only
C. II and III only
D. II, III, and IV only
E. I, II, and IV only
1). option c - sustainable growth rate is that growth rate which a firm can keep up with, without raising more funds and still maintaining the same dividend payout ratio.
2). option d - EFN will increase with an increase in capital intensity ratio (total assets/sales) since assets will have to increase to keep pace with the forecasted sales.
3). option c - This is an example of a firm commitment underwriting where the underwriting syndicate purchases the entire issue and then sells it in the market.
4). option b - A levered firm will face financial risk and interest tax shield.
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