Question 1

The weighted marginal cost of capital schedule is a graph that relates the firm's weighted average cost of capital to the level of total new financing.

Accepted Answer

A) True 
 B)False

Question 2

Firms typically raise long-term funds

Accepted Answer

A)  on a continuous basis. 
B)  in proportion to the capital mixture of the target capital structure. 
C)  in lump sums as needed. 
D)  only at the inception of the firm. 
A)  on a continuous basis. 
B)  in proportion to the capital mixture of the target capital structure. 
C)  in lump sums as needed. 
D)  only at the inception of the firm.

Question 3

A firm has common stock with a market price of $25 per share and an expected dividend of $2 pershare at the end of the coming year. The growth rate in dividends has been 5 percent. The cost ofthe firm's common stock equity is

Accepted Answer

A)  5 percent. 
B)  10 percent. 
C)  13 percent. 
D)  8 percent. 
A)  5 percent. 
B)  10 percent. 
C)  13 percent. 
D)  8 percent.

Question 4

When discussing weighing schemes for calculating the weighted average cost of capital, the preferences can be stated as

Accepted Answer

A)  book value weights are preferred over market value weights and target weights are preferred over historic weights. 
B)  market value weights are preferred over book value weights and target weights are preferred over historic weights. 
C)  book value weights are preferred over market value weights and historic weights are preferred over target weights. 
D)  market value weights are preferred over book value weights and historic weights are preferred over target weights. 
A)  book value weights are preferred over market value weights and target weights are preferred over historic weights. 
B)  market value weights are preferred over book value weights and target weights are preferred over historic weights. 
C)  book value weights are preferred over market value weights and historic weights are preferred over target weights. 
D)  market value weights are preferred over book value weights and historic weights are preferred over target weights.

Question 5

The cost of common stock equity is

Accepted Answer

A)  the cost of the guaranteed stated dividend. 
B)  the aftertax cost of the interest obligations. 
C)  the historical cost of floating the stock issue. 
D)  the rate at which investors discount the expected dividends of the firm. 
A)  the cost of the guaranteed stated dividend. 
B)  the aftertax cost of the interest obligations. 
C)  the historical cost of floating the stock issue. 
D)  the rate at which investors discount the expected dividends of the firm.

Question 6

In general, flotation costs include two components, underwriting costs and administrative costs.

Accepted Answer

A) True 
 B)False

Question 7

The weighted average cost that reflects the interrelationship of financing decisions can be obtained by weighing the cost of each source of financing by its target proportion in the firm's capital structure.

Accepted Answer

A) True 
 B)False

Question 8

The cost of capital can be thought of as the rate of return required by the market suppliers of capital in order to attract their funds to the firm.

Accepted Answer

A) True 
 B)False

Question 9

The cost of new common stock financing is higher than the cost of retained earnings due to

Accepted Answer

A)  commission costs and overpricing. 
B)  flotation costs and underpricing. 
C)  flotation costs and overpricing. 
D)  flotation costs and commission costs. 
A)  commission costs and overpricing. 
B)  flotation costs and underpricing. 
C)  flotation costs and overpricing. 
D)  flotation costs and commission costs.

Question 10

Which of the following industries has the least business risk?

Accepted Answer

A)  Restaurants 
B)  Telecommunications 
C)  Utilities 
D)  Air Transport 
A)  Restaurants 
B)  Telecommunications 
C)  Utilities 
D)  Air Transport

Question 11

The amount of preferred stock dividends that must be paid each year may be stated in dollars (i.e., x-dollar preferred stock) or as a percentage of the firm's earnings (i.e., x-percent preferred stock).

Accepted Answer

A) True 
 B)False

Question 12

A firm can retain more of its earnings if it can convince its stockholders that it will earn at least their required return on the reinvested funds.

Accepted Answer

A) True 
 B)False

Question 13

The weighted marginal cost of capital is an increasing function of the level of total new financing.

Accepted Answer

A) True 
 B)False

Question 14

The___________ is a weighted average of the cost of funds which reflects the interrelationship of  financing decisions.

Accepted Answer

A)  risk premium 
B)  nominal cost 
C)  risk-free rate 
D)  cost of capital 
A)  risk premium 
B)  nominal cost 
C)  risk-free rate 
D)  cost of capital

Question 15

One major expense associated with issuing new shares of common stock is

Accepted Answer

A)  underwriting fees. 
B)  legal fees. 
C)  underpricing. 
D)  registration fees. 
A)  underwriting fees. 
B)  legal fees. 
C)  underpricing. 
D)  registration fees.

Question 16

The cost of equity for a firm is 12% and its cost of debt is 6%. Ignoring taxes, what is the firm'sWACC if its debt-to-equity ratio is 1.0?

Accepted Answer

A)  12% 
B)  9% 
C)  18% 
D)  15% 
A)  12% 
B)  9% 
C)  18% 
D)  15%

Question 17

An investment opportunity/cost schedule

Accepted Answer

A)  ranks capital projects by net present value, and then compares the marginal return to the cost. 
B)  ranks capital projects by net present value, from highest to lowest, and then compares the discount rate to the marginal cost of capital. 
C)  ranks capital projects by internal rate of return from lowest to highest and marginal cost from highest to lowest, and then compares the marginal return to the marginal cost. 
D)  ranks capital projects by internal rate of return from the highest to lowest and marginal cost from lowest to highest, and then compares the marginal return to the marginal cost. 
A)  ranks capital projects by net present value, and then compares the marginal return to the cost. 
B)  ranks capital projects by net present value, from highest to lowest, and then compares the discount rate to the marginal cost of capital. 
C)  ranks capital projects by internal rate of return from lowest to highest and marginal cost from highest to lowest, and then compares the marginal return to the marginal cost. 
D)  ranks capital projects by internal rate of return from the highest to lowest and marginal cost from lowest to highest, and then compares the marginal return to the marginal cost.

Question 18

In utilizing the investment opportunity schedule and the weighted marginal cost of capital, a capital project will be

Accepted Answer

A)  acceptable as long as the marginal return equals or exceeds the weighted marginal cost of capital. 
B)  unacceptable if the marginal return equals the weighted marginal cost of capital. 
C)  unacceptable if the marginal return equals or exceeds the weighted marginal cost of capital. 
D)  acceptable as long as the marginal return equals or exceeds the average cost of capital over all levels of needed funding. 
A)  acceptable as long as the marginal return equals or exceeds the weighted marginal cost of capital. 
B)  unacceptable if the marginal return equals the weighted marginal cost of capital. 
C)  unacceptable if the marginal return equals or exceeds the weighted marginal cost of capital. 
D)  acceptable as long as the marginal return equals or exceeds the average cost of capital over all levels of needed funding.

Question 19

A corporation has concluded that its financial risk premium is too high. In order to decrease this, the firm can

Accepted Answer

A)  increase the proportion of common stock equity to decrease financial risk. 
B)  increase the proportion of long-term debt to decrease the cost of capital. 
C)  decrease the proportion of common stock equity to decrease financial risk. 
D)  increase short-term debt to decrease the cost of capital. 
A)  increase the proportion of common stock equity to decrease financial risk. 
B)  increase the proportion of long-term debt to decrease the cost of capital. 
C)  decrease the proportion of common stock equity to decrease financial risk. 
D)  increase short-term debt to decrease the cost of capital.

Question 20

The cost of common stock equity is the rate at which investors discount the expected dividends of the firm to determine its share value.

Accepted Answer

A) True 
 B)False

The weighted marginal cost of capital schedule is a graph that relates the firm's weighted average cost of capital to the level of total new financing.

Firms typically raise long-term funds

A firm has common stock with a market price of $25 per share and an expected dividend of $2 pershare at the end of the coming year. The growth rate in dividends has been 5 percent. The cost ofthe firm's common stock equity is

When discussing weighing schemes for calculating the weighted average cost of capital, the preferences can be stated as

The cost of common stock equity is

In general, flotation costs include two components, underwriting costs and administrative costs.

The weighted average cost that reflects the interrelationship of financing decisions can be obtained by weighing the cost of each source of financing by its target proportion in the firm's capital structure.

The cost of capital can be thought of as the rate of return required by the market suppliers of capital in order to attract their funds to the firm.

The cost of new common stock financing is higher than the cost of retained earnings due to

Which of the following industries has the least business risk?

The amount of preferred stock dividends that must be paid each year may be stated in dollars (i.e., x-dollar preferred stock) or as a percentage of the firm's earnings (i.e., x-percent preferred stock).

A firm can retain more of its earnings if it can convince its stockholders that it will earn at least their required return on the reinvested funds.

The weighted marginal cost of capital is an increasing function of the level of total new financing.

The___________ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions.

One major expense associated with issuing new shares of common stock is

The cost of equity for a firm is 12% and its cost of debt is 6%. Ignoring taxes, what is the firm'sWACC if its debt-to-equity ratio is 1.0?

An investment opportunity/cost schedule

In utilizing the investment opportunity schedule and the weighted marginal cost of capital, a capital project will be

A corporation has concluded that its financial risk premium is too high. In order to decrease this, the firm can

The cost of common stock equity is the rate at which investors discount the expected dividends of the firm to determine its share value.

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters

Exam 9: The Cost of Capital

The weighted marginal cost of capital schedule is a graph that relates the firm's weighted average cost of capital to the level of total new financing.

Firms typically raise long-term funds

A firm has common stock with a market price of $25 per share and an expected dividend of $2 pershare at the end of the coming year. The growth rate in dividends has been 5 percent. The cost ofthe firm's common stock equity is

When discussing weighing schemes for calculating the weighted average cost of capital, the preferences can be stated as

The cost of common stock equity is

In general, flotation costs include two components, underwriting costs and administrative costs.

The weighted average cost that reflects the interrelationship of financing decisions can be obtained by weighing the cost of each source of financing by its target proportion in the firm's capital structure.

The cost of capital can be thought of as the rate of return required by the market suppliers of capital in order to attract their funds to the firm.

The cost of new common stock financing is higher than the cost of retained earnings due to

Which of the following industries has the least business risk?

The amount of preferred stock dividends that must be paid each year may be stated in dollars (i.e., x-dollar preferred stock) or as a percentage of the firm's earnings (i.e., x-percent preferred stock).

A firm can retain more of its earnings if it can convince its stockholders that it will earn at least their required return on the reinvested funds.

The weighted marginal cost of capital is an increasing function of the level of total new financing.

The___________ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions.

One major expense associated with issuing new shares of common stock is

The cost of equity for a firm is 12% and its cost of debt is 6%. Ignoring taxes, what is the firm'sWACC if its debt-to-equity ratio is 1.0?

An investment opportunity/cost schedule

In utilizing the investment opportunity schedule and the weighted marginal cost of capital, a capital project will be

A corporation has concluded that its financial risk premium is too high. In order to decrease this, the firm can

The cost of common stock equity is the rate at which investors discount the expected dividends of the firm to determine its share value.

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters