10. Most of the Australian companies Pay dividends twice a year Once a year Ever
ID: 2806863 • Letter: 1
Question
10. Most of the Australian companies Pay dividends twice a year Once a year Every two years Every month A. B. C. D. 11. Assume that A Ltd.'s last dividend was $2 per share and the dividend is expected to grow at 7.5% indefinitely. The shares currently sell for s30, what is A Ltd.'s cost of capital? A. 14.7% B. 15.5% C. 13.6% D. 16.0% 12. Financial leverage refers to the extent to which the firm relies on: A. preference capital B. debt capital C. equity capital D. both preference and debt capital 13. Which of the following statements is true? A. In Australia, most companies have dissimilar capital structures B. Optimal capital structure can be calculated by using the formula C. There is no need for managers to determine the capital structure D. Net profit is the major determinant of a business's capital structure 14. A greater financial leverage A. Is advisable especially when interest rates are on the rise B. Increases the financial risk C. Decreases the financial risk D. None of the above 15. What should be Alpha's cost of equity if the shares are currently being sold at $4.00 and they have Just declared a dividend of $0.50? The growth rate is estimated at 6%. A. 18.52% B. 19.25% C. 15.29% D. 16.92%Explanation / Answer
Answer 10: option A is the answer. most ofthe companies pay two one interim and one final dividend
Answer 11:dividend growth model:
share price : dividend ( 1 + g)/ (cost of capital - g)
share price : $2 ( 1 + 0.075)/( k - 0.075)
30 = 2*1.075 /(k-0.075)
Solving this k = 14.66%
option A is the answer
Answer 12: option D is the answer. financial leverage in layman terms is the loan company has taken to run the business
answer 13:option D is the answer. net profit plays an important role in determining capital structure. Higher the profits more the chances that you may use it instead of debt to fund your business operations
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