29 Jun Multiple Choice: Conceptual
Question
Multiple Choice: Conceptual
[i]. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting?
a.Long-term debt.
b.Common stock.
c.Accounts payable and accruals.
d.Preferred stock.
[ii]. For a typical firm with a given capital structure, which of the following is correct? (Note: All rates are after taxes.)
a.kd > ke > ks > WACC.
b.ks > ke > kd > WACC.
c.WACC > ke > ks > kd.
d.ke > ks > WACC > kd.
e.None of the statements above is correct.
[iii]. Which of the following statements is most correct?
a.If a company’s tax rate increases but the yield to maturity of its noncallable bonds remains the same, the company’s marginal cost of debt capital used to calculate its weighted average cost of capital will fall.
b.All else equal, an increase in a company’s stock price will increase the marginal cost of retained earnings, ks.
c.All else equal, an increase in a company’s stock price will increase the marginal cost of issuing new common equity, ke.
d.Statements a and b are correct.
e.Statements b and c are correct.
[iv]. Which of the following statements is most correct?
a.Since the money is readily available, the cost of retained earnings is usually a lot cheaper than the cost of debt financing.
b.When calculating the cost of preferred stock, a company needs to adjust for taxes, because preferred stock dividends are tax deductible.
c.When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are tax deductible.
d.Statements a and b are correct.
e.Statements b and c are correct.
[v]. Which of the following factors in the discounted cash flow (DCF) approach to estimating the cost of common equity is the least difficult to estimate?
a.Expected growth rate, g.
b.Dividend yield, D1/P0.
c.Required return, ks.
d.Expected rate of return, .gif”>.
e.All of the above are equally difficult to estimate.
Answer: d
[vi]. Which of the following statements is most correct?
a.The WACC measures the after-tax cost of capital.
b.The WACC measures the marginal cost of capital.
c.There is no cost associated with using retained earnings.
d.Statements a and b are correct.
e.All of the statements above are correct.
[vii]. Which of the following statements about the cost of capital is incorrect?
a.A company’s target capital structure affects its weighted average cost of capital.
b.Weighted average cost of capital calculations should be based on the after-tax costs of all the individual capital components.
c.If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will increase.
d.Flotation costs can increase the weighted average cost of capital.
e.An increase in the risk-free rate is likely to increase the marginal costs of both debt and equity financing.
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.