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Free CMA Exam Braindumps (page: 186)

Page 186 of 336
PDF with 1336 Questions
View Related Case Study

A company's beta value has decreased because of a change in its marketing strategy. Consequently, the discount rate applied to expected cash flows of potential projects will be

  1. Reduced
  2. Increased.
  3. Unchanged.
  4. Zero.

Answer(s): A

Explanation:

There is a positive relationship between a firm's beta value and the discount rate applied to cash flows. Thus, a decrease in beta value will reduce the discount rate.



View Related Case Study

A company has made the decision to finance next year's capital projects through debt rather than additional equity. The benchmark cost of capital for these projects should be

  1. The before-tax cost of new-debt financing.
  2. The after-tax cost of new-debt financing
  3. The cost of equity financing.
  4. The weighted-average cost of capital.

Answer(s): D

Explanation:

A weighted average of the costs of all financing sources should be used, with the weights 11determined by the usual financing proportions. The terms of any financing raised at the time of initiating a particular project do not represent the cost of capital for the firm. When a firm achieves its optimal capital structure, the weighted-average cost of capital is minimized



View Related Case Study

When a company increases its degree of financial leverage (DFL).

  1. The equity beta of the company falls.
  2. The systematic risk of the company falls.
  3. The systematic risk of the company rises.
  4. The standard deviation of returns on the equity of the company rises.

Answer(s): D

Explanation:

The DFL equals the percentage change in earnings available to common shareholders divided by the percentage change in net operating income When the DFL rises. fixed interest charges and the riskiness of the firm rise. As a result, the variability of the returns to equity holders will increase. In other words, the standard deviation of returns on the equity of the company rises.



View Related Case Study

If a company has a higher dividend-payout ratio, then, if all else is equal, it will have

  1. A higher margin& cost of capital
  2. A lower marginal cost of capital.
  3. A higher investment opportunity schedule.
  4. A lower investment opportunity schedule.

Answer(s): A

Explanation:

The higher the dividend-payout ratio, the sooner retained earnings are exhausted and the company must seek external financing. Assuming the same investments are undertaken, the result is a higher marginal cost of capital because lower-cost capital sources will be used up earlier.



Page 186 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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INDIA
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Anonymous
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Still the test is under process
Anonymous
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