A Company's CFO Wants to Maintain a Target Debt-To-Equity Ratio

question 25

Multiple Choice

A company's CFO wants to maintain a target debt-to-equity ratio of 1/4.If the WACC is 18.6%, and the pretax cost of debt is 9.4%, what is the cost of common equity assuming a tax rate of 34%?

• A)19.90%
• B)20.90%
• C)21.70%
• D)22.73% D/E = 1/4, then D/D+E = 1/1+4 = 1/5
• Therefore: D/V = 1/5 and E/V = 4/5
• 0)186 = 1/5(0.094)(1 - 0.34) + 4/5(r_e)
• 0)186 = .0124 + 4/5(re)

Grasp the significance of team reflexivity in improving collective efficacy and team adaptation.

Identify key factors contributing to team effectiveness, including superordinate goals, team composition, and autonomy.

Distinguish between different types of teams, such as virtual, self-managed, and cross-functional.

Understand challenges in instilling shared mental models in cross-functional teams due to diverse backgrounds.

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Definitions:

Gross Margin Percentage

The portion of each dollar of revenue that a company retains as gross profit, calculated as gross profit divided by total revenue.

Times Interest Earned Ratio

A financial metric assessing a company's ability to meet its debt obligations by comparing its income before interest and taxes (EBIT) to its interest expenses.

Net Income

The profit resulting after all expenses, taxes, and costs have been deducted from total revenues.

Interest Expense

The cost incurred by an entity for borrowed funds, which can include costs related to bonds, loans, and lines of credit.