BCOR 340 FINAL | QUESTIONS AND ANSWERS |
WINTER 2026 | WITH COMPLETE SOLUTION.
Western electric has 21,000 shares of common stock outstanding at a price per
share of $61 and a rate of return of 15.6%. The firm has 11,000 shares of $8
preferred stock outstanding at price of $48 a share. the outstanding debt has a
total face value of $275,00 and currently sells for 104 percent of face. the yield
to maturity on the debt is 8.81 percent. what is the firms weighted average
cost of capital if the tax rate is 35% Answer - Common stock: 21,000 × $61 =
$1,281,000
Preferred stock: 11,000 × $48 = $528,000
Debt: 104% × $275,000 = $286,000
Total market value = $1,281,000 + 528,000 + 286,000 = $2,095,000
WACC = ($1,281,000/$2,095,000)(.156) + ($528,000/$2,095,000)($8/$48) +
($286,000/$2,095,000)(.0881)(1 -.35) = .1452, or 14.52 percent
Which of the following statements are correct?
A. the NPV is a measure of profits expressed in todays dollars
B. The NPV is positive when the required return exceeds the internal rate of
return.
C. If the initial cost of a project is increased, the NPV of that project will also
increase.
D. If the internal rate of return equals the required return, the NPV will equal
zero.
, E. NPV is equal to an investment's cash inflows discounted to today's dollars.
Answer - D. if the internal rate of return equals the required return, the NPV
will equal zero
Which one of the following bonds is the most sensitive to changes in market
interest
rates?
A. 5-year, zero coupon
B. 5-year, 5 percent coupon
C. 5-year, 8 percent coupon
D. 10-year, zero coupon
E. 10-year, 5 percent coupon Answer - D. The longer the maturity, lower the
coupon, more sensitive to changes in market interest rates.
Which statement is correct?
A. An underpriced security will plot below the security market line.
B. A security with a beta of 1.54 will plot on the security market line if it is
correctly
priced.
C. A portfolio with a beta of .93 will plot to the right of the overall market.
D. A security with a beta of .99 will plot above the security market line if it is
correctly
priced.
E. A risk-free security will plot at the origin Answer - B. A security with a beta
of 1.54 will plot on the security market lines it it is correctly priced
The present value of a lump sum future amount Answer - increases as the
interest rate decreases.
WINTER 2026 | WITH COMPLETE SOLUTION.
Western electric has 21,000 shares of common stock outstanding at a price per
share of $61 and a rate of return of 15.6%. The firm has 11,000 shares of $8
preferred stock outstanding at price of $48 a share. the outstanding debt has a
total face value of $275,00 and currently sells for 104 percent of face. the yield
to maturity on the debt is 8.81 percent. what is the firms weighted average
cost of capital if the tax rate is 35% Answer - Common stock: 21,000 × $61 =
$1,281,000
Preferred stock: 11,000 × $48 = $528,000
Debt: 104% × $275,000 = $286,000
Total market value = $1,281,000 + 528,000 + 286,000 = $2,095,000
WACC = ($1,281,000/$2,095,000)(.156) + ($528,000/$2,095,000)($8/$48) +
($286,000/$2,095,000)(.0881)(1 -.35) = .1452, or 14.52 percent
Which of the following statements are correct?
A. the NPV is a measure of profits expressed in todays dollars
B. The NPV is positive when the required return exceeds the internal rate of
return.
C. If the initial cost of a project is increased, the NPV of that project will also
increase.
D. If the internal rate of return equals the required return, the NPV will equal
zero.
, E. NPV is equal to an investment's cash inflows discounted to today's dollars.
Answer - D. if the internal rate of return equals the required return, the NPV
will equal zero
Which one of the following bonds is the most sensitive to changes in market
interest
rates?
A. 5-year, zero coupon
B. 5-year, 5 percent coupon
C. 5-year, 8 percent coupon
D. 10-year, zero coupon
E. 10-year, 5 percent coupon Answer - D. The longer the maturity, lower the
coupon, more sensitive to changes in market interest rates.
Which statement is correct?
A. An underpriced security will plot below the security market line.
B. A security with a beta of 1.54 will plot on the security market line if it is
correctly
priced.
C. A portfolio with a beta of .93 will plot to the right of the overall market.
D. A security with a beta of .99 will plot above the security market line if it is
correctly
priced.
E. A risk-free security will plot at the origin Answer - B. A security with a beta
of 1.54 will plot on the security market lines it it is correctly priced
The present value of a lump sum future amount Answer - increases as the
interest rate decreases.
