Exam 18: Capital Structure and the Cost of Capital

Because the cost of capital is used to evaluate future investment proposals,it is important to flotation costs because such costs would be incurred if a firm were to raise new capital to fund proposed projects.

As a general rule,the capital structure that:

When retained earnings are used up and new common stock is issued,we know that the cost of:

When the interest expense is zero,the percentage change in earnings per share will be the same as the percentage change in EBIT.

All of the following statements are correct except:

All of the following statements are correct except:

All of the following methods can be used to estimate the cost of equity except:

The degree of financial leverage measures the sensitivity of earnings per share to changes in EBIT.

The weighted average cost of capital represents the maximum required rate of return on a capital-budgeting project and is found by multiplying the cost of each capital structure component by its appropriate weight and summing the terms.

The degree of combined leverage shows us to what degree a percentage change in sales will cause a percentage change in:

Financial risk affects the bottom half of the income statement.

Which of the following is not an influence affecting a firm's capital structure choices?

A company with a DCL of 12 and a DFL of 2 has a DOL of?

The EPS/EBIT indifference level represents the level of EBIT at which the firm would be indifferent between two different capital structures because they both result in the same level of EPS.

All of the following statements are correct except:

A decrease in the debt ratio will normally have no effect on:

All of the following methods can be used to estimate the cost of debt except:

If a firm has total long-term capital of $1,000,000,preferred stock of $500,000,preferred dividends of $10 and preferred stock price of $100,the weighted cost of capital is:

The EPS/EBIT indifference level represents the level of Assets at which the firm would be indifferent between two different capital structures because they both result in the same level of EPS.

Which of the following is a correct way to calculate degree of combined leverage?