Free CMA Exam Braindumps (page: 162)

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Which one of the following factors might cause a firm to increase the debt in TTS financial structure?

  1. An increase in the corporate income tax rate.
  2. Increased economic uncertainty
  3. An increase in the federal funds rate.
  4. An increase in the price-earnings ratio.

Answer(s): A

Explanation:

An increase in the corporate income tax rate might encourage a compare to borrow because interest on debt is tax deducible, `4iereas dividends are not Accordingly, an increase in the tax rate means that the after-tax cost of debt capital will decrease, Given equal interest rates, a firm with a high tax rate 4lI have a lower after- tax cost of debt capital than a firm with a low tax rate.



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What is the yield to maturity on Fox Inc.'s bonds if its after-tax cost of debt is 9% and its tax rate is 34%?

  1. 5.94%
  2. 9%
  3. 1364%
  4. 26.47%

Answer(s): C

Explanation:

The 9% represents the average-tax cost, or 66% (100% - 34%) of the yield. Thus, divide 9% by 66% to find the before-tax interest
9% ÷ 66% = 13.64%



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An organization's executive committee, meeting to solve an important problem, spent 30 minutes analyzing data and debating the cause of the problem. Finally, they agreed and could move onto the next step. Possible steps in the creative problem-solving process are listed below. Which step should the committee perform next?

  1. Select a solution.
  2. Generate alternative solutions.
  3. Identify the problem.
  4. Consider the reaction of competitors to various courses of action.

Answer(s): B

Explanation:

Robert Kreisler [Management, 9th ed., Houghton-Mifflin (2004), page 268] states that "managerial problem solving consists of a four-step sequence: (1) identifying the problem, (2) generating alternative solutions, (3) selecting a solution, and (4) implementing and evaluating the solution." In the first step, management determines what the actual situation is, what the desired situation is, and the reason for the difference.



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the rational decision-making process is most often typified by

  1. Perfect information.
  2. Bounded rationality.
  3. Selection of optimum decisions.
  4. Choice of the least risky solution.

Answer(s): B

Explanation:

Rarely can decision makers know all possible courses of action, the variables that will affect them, and their precise outcomes. Decision makers face limitations of time, money, technical methods, and creativity. Accordingly, they are restricted to a bounded rationality. Because rationality is inherently limited, decisions invariably 1entail some risk.



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