Chapter 10 pt 1

Question 1

What does WACC stand for?

Accepted Answer

Weighted Average Cost of Capital

Question 2

We use common stock return to value retained earnings because

Accepted Answer

Because opportunity costs of not returning money to shareholders, Because stockholder's either require a return or dividends

Question 3

The way to calculate the after tax cost of debt is to

Accepted Answer

rd(1-T)

Question 4

What is the cost of retained earnings/common stock using the bond yield plus risk premium?

Accepted Answer

14%

Question 5

What is D1

Accepted Answer

$4.3995

Question 6

What is this bond's yield to maturity?

Accepted Answer

10%

Question 7

What is the cost of retained earnings/common stock using the CAPM approach?

Accepted Answer

14.2%

Question 8

Which one of these is not a way we use to calculate the market cost of retained earnings/common stock?

Accepted Answer

Future value of an annuity due

Question 9

The quarterly dividend payment is ($100 par, 10%, quarterly dividend)

Accepted Answer

$2.50

Question 10

Which one of these is not part of invested capital for a company?

Accepted Answer

Accounts Payable

Question 11

The benefit that debt has over equity is that

Accepted Answer

Interest payments reduce taxable income for companies

Question 12

What is the after tax cost of debt for this bond?

Accepted Answer

7.5%

Question 13

What is the cost of retained earnings/common stock using the Discounted Dividend + Growth rate?

Accepted Answer

13.8%

Question 14

If the 3 estimates for the cost of stock are 14.0%, 14.2%, & 13.8% percent, what would be the average we would use?

Accepted Answer

14%

Question 15

Using the PV of a perpetuity to calculate the interest rate, the return is ($2.50 quarterly dividend, $111.10 market)

Accepted Answer

9%

Question 16

Always use market rates of return for calculating WACC

Accepted Answer

True

Questions 16