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Which of the following statements is correct regarding the weightedaverage cost of capital (WACC)?
Question 2 (FINM-0066)
The benefits of debt financing over equity financing are likely to be
highest in which of the following situations?
Question 3 (RMCB-0027)
Which of the following describes an option?
Question 4 (FINM-0034)
A company has $1,500,000 of outstanding debt and $1,000,000 of
outstanding common equity. Management plans to maintain the same
proportions of financing from each source if additional projects are
undertaken. If the company expects to have $60,000 of retained
earnings available for reinvestment in new projects in the coming year,
what dollar amount of new investments can be undertaken without
issuing new equity?
Value of equity
Value of debt + Value of equity
Since the question states that the firm will maintain the same weight of
each financing source, each dollar invested is composed of 40 cents of
equity and 60 cents of debt. The first $60,000 of equity used in
financing new projects is sourced from retained earnings. This source
of equity is exhausted when the firm reaches an investment level of
$60,000 / .4 = $150,000.When the level of investment exceeds this
amount, equity financing must be raised externally.
Question 5 (FINM-0024)