FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 90

a. Increase the dividend payout ratio for the upcoming year.
b. Increase the percentage of debt in the target capital structure.
c. Increase the proposed capital budget.
d. Reduce the amount of short-term bank debt in order to increase the
current ratio.
e. Reduce the percentage of debt in the target capital structure.
2. LaPango Inc. estimates that its average-risk projects have a WACC of
10%, its below-average risk projects have a WACC of 8%, and its
above-average risk projects have a WACC of 12%. Which of the
following projects (A, B, and C) should the company accept?
a. Project B, which is of below-average risk and has a return of 8.5%.
b. Project C, which is of above-average risk and has a return of 11%.
c. Project A, which is of average risk and has a return of 9%.
d. None of the projects should be accepted.
e. All of the projects should be accepted.
3. Which of the following statements is CORRECT?
a. When calculating the cost of preferred stock, a company needs to
adjust for taxes, because preferred stock dividends are deductible by the
paying corporation.
b. All else equal, an increase in a company’s stock price will increase its
marginal cost of retained earnings, rs.