Homework Answers
| 1] | Which is true for a firm's overall cost of equity? |
| [c] It is dependent on growth rate and risk levelofthefirm | |
| 2] | Which one of the following is the primary determinant of a |
| firm's cost of capital? | |
| a] Use of funds |
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Which is true for a firm's overall cost of equity: Select one: a. It is generally...
Which is true for a firm's cost of equity: Select one a. It equals risk-free rate...
Which is true for a firm's cost of equity: Select one a. It equals risk-free rate plus market risk premium b. It remains unaffected by firm risk c. When based on dividend growth, firm risks are ignored d. It increases as unsystematic firm risk increases
True or False question The after-tax cost of debt generally increases when a firm's bond rating...
True or False question The after-tax cost of debt generally increases when a firm's bond rating decreases. The weighted average cost of capital for a firm is the discount rate which the firm should apply to all of the projects it undertakes. Assigning discount rates to individual projects based on the risk level of each project may cause the firm's overall weighted average cost of capital to either increase or decrease over time. Other things being equal, the weighted average...
FoodMart is considering a project. The project's flotation costs amount to 9.2% of the funding need. Thus, the project...
FoodMart is considering a project. The project's flotation costs amount to 9.2% of the funding need. Thus, the project analysis should Multiple Choice Increase the project's discount rate to offset these expenses by multiplying the company's WACC by 1.092 0 O increase the project's discount rate to offset these expenses by dividing the company's WACC by (1 - 092) 0 ) add 9.2 percent to the company's firm's WACC to determine the discount rate for the project 0 increase the...
When estimating a firm's cost of capital, which of the following is NOT one of the...
When estimating a firm's cost of capital, which of the following is NOT one of the four mistakes to avoid? A. Base the cost of debt on the coupon rate on a firm's existing debt. B. Never use the current book value capital structure to obtain the weights when estimating the WACC. C. Always remember that capital components are funds that come from investor. D. When estimating the market risk premium for the CAPM method, never use the historical average...
The weighted average cost of capital for a firm is dependent upon the firm's level of...
The weighted average cost of capital for a firm is dependent upon the firm's level of risk. TRUE OR FALSE It is generally better to base estimates of the WACC on book value weights of debt and equity since market values, particularly those for equity, tend to fluctuate widely. TRUE OR FALSE Ignoring taxes, if a firm issues debt at par, then the YTM cannot be computed. TRUE OR FALSE
All else held constant, which one of these is most apt to decrease the average cost...
All else held constant, which one of these is most apt to decrease the average cost of capital (WACC) of a leveraged firm? a) An increase in a market's average return b) A decrease in the tax rate c) An increase in the treasure rate when the firm's equity beta > 1 d) An increase in the firm's risk and equity beta
Which one of the following factors is not considered in calculating the firm’s cost of equity? risk free rate of retu...
Which one of the following factors is not considered in calculating the firm’s cost of equity? risk free rate of return beta interest rate on corporate debt expected return on equities difference between expected return on stocks and the risk free rate of return Which one of the following factors is not considered in calculating the firm’s cost of capital? cost of equity interest rate on debt the firm’s marginal tax rate book value of debt and equity the firm’s...
Which of the following statements is FALSE? A. A firm's cost of equity capital is directly...
Which of the following statements is FALSE? A. A firm's cost of equity capital is directly related to investors' required rate on the firm's stock. B. When using the dividend growth model to estimate required return, the sustainable growth rate may be used to approximate the growth rate in dividends. C. A firm's cost of debt may be estimated using the average coupon rate on the firm's bonds. D. The capital asset pricing model may be a preferred option for...
LP Bean Company, an all equity company, has an EBIT of $1,200,000 that it expects it...
LP Bean Company, an all equity company, has an EBIT of $1,200,000 that it expects it will earn forever, and it pays all of its earnings as dividends to shareholders (i.e., no growth). The firm has a corporate tax rate of 45% and has an un-levered beta of 1.25. In the market, you observe that Government T-bills are being sold to yield 3% and the market risk premium is 6%. Assume a world of taxes and a cost for the...
TRUE OR FALSE 1. Ignoring taxes, if a firm issues debt at par, then the YTM...
TRUE OR FALSE 1. Ignoring taxes, if a firm issues debt at par, then the YTM cannot be computed. 2.Given the following: the risk-free rate is 8% and the market risk premium is 8.5%. Project III should be accepted if the firm's beta is 1.2. Project Beta Expected return I 0.65 12% II 0.90 17% III 1.40 19% 3. The cost of capital is also known as the appropriate discount rate 4. The weighted average cost of capital for a...
Which is true for a firm's cost of equity: Select one a. It equals risk-free rate plus market risk premium b. It remains unaffected by firm risk c. When based on dividend growth, firm risks are ignored d. It increases as unsystematic firm risk increases
FoodMart is considering a project. The project's flotation costs amount to 9.2% of the funding need. Thus, the project analysis should Multiple Choice Increase the project's discount rate to offset these expenses by multiplying the company's WACC by 1.092 0 O increase the project's discount rate to offset these expenses by dividing the company's WACC by (1 - 092) 0 ) add 9.2 percent to the company's firm's WACC to determine the discount rate for the project 0 increase the...
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