cost of capital

mcqspedia.com has 53 Question/Answers about Topic cost of capital

Cost of common stock is 13% and bond risk premium is 5% then bond yield would be

Cost of common stock is 13% and bond risk premium is 5% then bond yield would be
  • A. $18
  • B. 2.60%
  • C. 8%
  • D. 18%
  • Correct Answer: Option C

A formula of after-tax component cost of debt is

A formula of after-tax component cost of debt is
  • A. interest rate-tax savings
  • B. marginal tax-required return
  • C. interest rate + tax savings
  • D. borrowing cost + embedded cost
  • Correct Answer: Option A

Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be

Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be
  • A. 7.20%
  • B. 7.2 times
  • C. 17.14 times
  • D. $17.14
  • Correct Answer: Option A

Bond risk premium is added in to bond yield to calculate the

Bond risk premium is added in to bond yield to calculate the
  • A. cost of American option
  • B. cost of European option
  • C. cost of common stock
  • D. cost of preferred stock
  • Correct Answer: Option C

Interest rates, tax rates and market risk premium are factors which an/a

Interest rates, tax rates and market risk premium are factors which an/a
  • A. industry cannot control
  • B. industry cannot control
  • C. firm must control
  • D. firm cannot control
  • Correct Answer: Option D

Preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to calculate

Preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to calculate
  • A. transaction cost of preferred stock
  • B. financing of preferred stock
  • C. weighted cost of capital
  • D. component cost of preferred stock
  • Correct Answer: Option D

Cost of new debt or marginal debt is also classified as

Cost of new debt or marginal debt is also classified as
  • A. historical rate
  • B. embedded rate
  • C. marginal rate
  • D. Both A and B
  • Correct Answer: Option D

Beta which is estimated as regression slope coefficient is classified as

Beta which is estimated as regression slope coefficient is classified as
  • A. historical beta
  • B. market beta
  • C. coefficient beta
  • D. risky beta
  • Correct Answer: Option A

If future return on common stock is 19% and rate on T-bonds is 11% then current market risk premium will be

If future return on common stock is 19% and rate on T-bonds is 11% then current market risk premium will be
  • A. $30
  • B. 30%
  • C. 8%
  • D. $8
  • Correct Answer: Option C

Cost of common stock is 15% and bond yield is 10.5% then bond risk premium will be

Cost of common stock is 15% and bond yield is 10.5% then bond risk premium will be
  • A. 1.43%
  • B. $70
  • C. 25.50%
  • D. 4.50%
  • Correct Answer: Option D

A risk associated with project and way considered by well diversified stockholder is classified as

A risk associated with project and way considered by well diversified stockholder is classified as
  • A. expected risk
  • B. beta risk
  • C. industry risk
  • D. returning risk
  • Correct Answer: Option B

Capital budgeting decisions are analyzed with help of weighted average and for this purpose

Capital budgeting decisions are analyzed with help of weighted average and for this purpose
  • A. component cost is used
  • B. common stock value is used
  • C. cost of capital is used
  • D. asset valuation is used
  • Correct Answer: Option C

Cost of capital is equal to required return rate on equity in case if investors are only

Cost of capital is equal to required return rate on equity in case if investors are only
  • A. valuation manager
  • B. common stockholders
  • C. asset seller
  • D. equity dealer
  • Correct Answer: Option B

Method in which company finds other companies considered in same line of business to evaluate divisions is classified as

Method in which company finds other companies considered in same line of business to evaluate divisions is classified as
  • A. pure play method
  • B. same play method
  • C. division line method
  • D. single product method
  • Correct Answer: Option A

In weighted average capital, capital structure weights estimation does not rely on value of

In weighted average capital, capital structure weights estimation does not rely on value of
  • A. investor's equity
  • B. market value of equity
  • C. book value of equity
  • D. stock equity
  • Correct Answer: Option C

Retention ratio is 0.55 and return on equity is 12.5% then growth retention model would be

Retention ratio is 0.55 and return on equity is 12.5% then growth retention model would be
  • A. 11.95%
  • B. 6.88%
  • C. 13.05%
  • D. 22.72%
  • Correct Answer: Option B

Bond risk premium is 3% and bond yield is 10.2% then cost of common stock will be

Bond risk premium is 3% and bond yield is 10.2% then cost of common stock will be
  • A. 3.40%
  • B. 13.20%
  • C. 7.20%
  • D. 30.60%
  • Correct Answer: Option B

An interest rate which is paid by firm as soon as it issues debt is classified as pre-tax

An interest rate which is paid by firm as soon as it issues debt is classified as pre-tax
  • A. term structure
  • B. market premium
  • C. risk premium
  • D. cost of debt
  • Correct Answer: Option D

Type of cost which is used to raise common equity by reinvesting internal earnings is classified as

Type of cost which is used to raise common equity by reinvesting internal earnings is classified as
  • A. cost of mortgage
  • B. cost of common equity
  • C. cost of stocks
  • D. cost of reserve assets
  • Correct Answer: Option B

If retention rate is 0.68 then payout rate will be

If retention rate is 0.68 then payout rate will be
  • A. 1.47%
  • B. 1.68
  • C. 0.32
  • D. 0.68
  • Correct Answer: Option C
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