1. Determining the amount of money to borrow in order to finance a 20-year project is a capital structure decision.
True
False
2. What is the present value of $1,050 payments received at the beginning of each year for the next 10 years? Assume an interest rate of 6.2%.
a. $7,914.10
b. $8,742.88
c. $8,861.29
d. $7,801.69
e. $8,130.02
3. ABC Inc. spends approximately $2 million annually to hire auditors to go over the firm's financial statements. This is an example of an indirect agency cost.
True
False
4. Given the following information: current assets = $400; fixed assets = $400; long-term debt = $455; equity = $300; sales = $470; costs = $400; tax rate = 34%. Suppose that assets and costs maintain a constant ratio to sales. What is the total external financing needed if sales increase 25%? Assume the firm pays no dividends.
a. $143.75
b. $142.25
c. $183.75
d. $167.25
e. $380.25