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Cost of Capital Flashcards | StudBud
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Cost of Capital
Cost of Capital
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1
Common Stock $100 M@cost 15.70 % ,Preferred Stock $ 60 M @cost 11.83 %, Debt $ 40M@ 10 % while tax rate is 20%,find WACC
14%
13%
11%
12%
2
The before-tax cost of debt, is lower than the after-tax cost of Debt, for purposes of Calculating company WACC
False
True
3
The cost of preferred stock to a firm must be adjusted to an after-tax figure
False
True
4
Find RRR from the following data: RFR 4% & Market Risk Premuim 5% and beta 1.15
9.75%
9.57%
5.15%
5.51%
5
cost of capital is considered as important factor in............to set rates designed to permit the co. to earn its WACC
Non-Profit Organization
Governmental Utility’s Corporation
Partner Company
Sole Proprietorship company
6
For a firm whose target capital structure 50% debt and 50% common equity, which of the following statements is CORRECT?
The WACC is calculated on a before-tax basis
The WACC exceeds the cost of equity.
The cost of equity is always equal to or greater than the cost of debt.
The cost of retained earnings exceeds the cost of new common stock
7
cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets
False
True
8
D
1
= $3.50, Growth rate (constant) 6.50%, Share currently sells for $62.50 , what is the cost of Equity?
11.10%
12.10%
13.10%
10.10
9
Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC)?
Long-term debt
Accounts payable.
Common stock
Preferred stock
10
Which of the following statements is CORRECT?
A change in a company’s target capital structure cannot affect its WACC
Flotation costs with issuing new common stock normally reduce the WACC
If a tax rate increases, then weighted average cost of capital will decline
WACC should be based on the before-tax costs of all the capital componets
11
Capital" is sometimes defined as the funds supplied by investors
True
False
12
When Using CAPM, which of the following factors can be determined ?
Share Price
Stock Dividend
Growth Ratio
Investor Required Rate of Return
13
The cost of common stock is the rate of return the marginal stockholder requires on the firm's common stock.
False
True
14
The firm’s target capital structure should be consistent with which of the following statements
Minimize the Cost of Equity
Minimize the Cost of Debt
Maximize the earnings Per Share (EPS)
Minimize the weighted average cost of capital (WACC)
15
cost of debt is equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt
False
True
