Q12. Stolzenbach Technologies has a target capital structure of 60% equity and 40% debt. The schedule of financing costs for the Stolzenbach is shown in the table below:

Stolzenbach Technologies has breakpoints for raising additional financing at both:

A)   $500 million and $700 million.

B)   $500 million and $1,000 million.

C)   $400 million and $700 million.

Q13. A firm with a debt to equity ratio of 0.5 and a dividend payout ratio of 40% projects earnings to be $20 million. Which of the following choices is closest to the retained earnings/new equity break point?

A)   $18.0 million.

B)   $29.9 million.

C)   $16.8 million.

Q14. Which one of the following statements about the marginal cost of capital (MCC) is most accurate?

A)   The MCC is the cost of the last dollar obtained from bondholders.

B)   A breakpoint on the MCC curve occurs when one of the components in the weighted average cost of capital changes in cost.

C)   The MCC falls as more and more capital is raised in a given period.

答案和详解如下：

Q12. Stolzenbach Technologies has a target capital structure of 60% equity and 40% debt. The schedule of financing costs for the Stolzenbach is shown in the table below:

Stolzenbach Technologies has breakpoints for raising additional financing at both:

A)   $500 million and $700 million.

B)   $500 million and $1,000 million.

C)   $400 million and $700 million.

Correct answer is B)

Stolzenbach will have a break point each time a component cost of capital changes, for a total of three marginal cost of capital schedule breakpoints.

Break point_{Debt > $200mm} = ($200 million ÷ 0.4) = $500 million

Break point_{Debt > $500mm} = ($400 million ÷ 0.4) = $1,000 million

Break point_{Equity > $300mm} = ($300 million ÷ 0.6) = $500 million

Break point_{Equity > $700mm} = ($700 million ÷ 0.6) = $1,167 million

Q13. A firm with a debt to equity ratio of 0.5 and a dividend payout ratio of 40% projects earnings to be $20 million. Which of the following choices is closest to the retained earnings/new equity break point?

A)   $18.0 million.

B)   $29.9 million.

C)   $16.8 million.

Correct answer is A)

RE = ($20 million)(0.6) = $12 million, Break point = ($12 million) ÷ (target equity weight). Use algebra to determine the target equity weight. D/E ratio is 0.5, therefore D = 0.5E. V = D + E therefore V = 0.5E + E, V = 1.5E, E ÷ V = 1 ÷ 1.5, therefore target equity weight equals 0.6667. Final answer is $17.9 million ($12 million ÷ 0.6667 = 18.0).

Q14. Which one of the following statements about the marginal cost of capital (MCC) is most accurate?

A)   The MCC is the cost of the last dollar obtained from bondholders.

B)   A breakpoint on the MCC curve occurs when one of the components in the weighted average cost of capital changes in cost.

C)   The MCC falls as more and more capital is raised in a given period.

Correct answer is B)         

A breakpoint is calculated by dividing the amount of capital at which a component's cost of capital changes by the weight of that component in the capital structure.

The marginal cost of capital (MCC) is defined as the weighted average cost of the last dollar raised by the company. Typically, the marginal cost of capital will increase as more capital is raised by the firm. The marginal cost of capital is the weighted average rate across all sources of long-term financings – bonds, preferred stock, and common stock – when the final dollar was obtained, regardless of its specific source.

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