Which of the Following Statements Is Correct

question 1

Multiple Choice

Which of the following statements is correct?

• A) The first pass using the projected balance sheet method determines the financing feedback effects and determines how much in additional funds are needed.The second pass completes the cycle,identifies the full financing need,and eliminates further feedback effects.
• B) Interest expense on additional new debt is the only income statement account affected by financing feedback,and dividends payable to new common stock is the only balance sheet account affected.
• C) The projected balance sheet method is useful for determining additional funds needed,however,it cannot be used in evaluating dividend policy and capital structure decisions.
• D) One reason a firm's managers may choose to meet additional funds needed requirements through common stock is that it involves no financing feedback effects.Since no new debt is used,interest expense will be considered fully in the first pass,the income statement will remain unchanged,and no second pass is needed.
• E) If new debt and new stock are used to meet new financing needs,net income will decrease from the first pass to the second pass even though taxes decrease.In addition,if dividends are to be paid on new stock,this will further decrease the amount of retained earnings available for financing needs.

Understand the concept of beta and its impact on the cost of equity and appropriate discount rates for projects.

Determine appropriate discount rates for specific project betas.

Calculate the expected stock market return based on dividend growth models.

Calculate the cost of capital for divisions within a firm.

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Definitions:

Identity Statuses

A concept pertaining to the different stages or conditions through which an individual's identity development passes.

Moratorium Stage

A period during an individual's development in which they are actively exploring options but have not yet made clear commitments in areas such as career and personal beliefs.

James Marcia

A psychologist known for his work on adolescent identity development, particularly the identity status theory.

Identity Diffusion Stage

A phase in Erik Erikson's theory of development where an individual has not yet achieved a clear sense of identity and is exploring various possibilities.