Cost Of Capital: Multiple Choice Questions

Saturday, April 17, 2021

Cost Of Capital: Multiple Choice Questions | BluPapers

Which one of the following is a correct statement? a. Current tax laws favor debt financing b. A decrease in the dividend growth rate increases the cost of equity c. An increase in the systematic risk of a firm will decrease the firm's cost of capital d. A decrease in the firm's debt-equity ratio will usually decrease the firm's cost of capital e.Cost of equity and its aftertax cost of debt. C. Pretax cost of debt and equity securities. D. Bond coupon rates. E. Dividend and capital gains yields. 4. In an efficient market, the cost of equity for a risky firm does which one of the following according to the security market line? A.All else constant, the weighted average cost of capital for a risky, levered firm will decrease if: the firm's bonds start selling at a premium rather than at a discount. the market risk premium increases. the firm replaces some of its debt with preferred stock.After-tax cost of debt = Pre-tax cost of debt x (1 - Tax rate) If the tax rate increases, the after-tax cost of debt will decrease. If the tax rate decreases, the after-tax cost of debt will...A firm has a cost of equity of 13 percent, a cost of preferred of 11 percent, and an aftertax cost of debt of 6 percent. Given this, which one of the following will increase the firm's weighted average cost of capital? A. Increasing the firm's tax rate B. Issuing new bonds at par C. Redeeming shares of common stock D. Increasing the firm's beta

Corporate Finance Homework 12 - ProProfs Quiz

The cost of debt is the rate that a prudent investor would require to lend money to a company on an aftertax basis, as interest payments are tax-deductible. All else held constant, tax rate is inversely correlated with the aftertax cost of debt. That is, the higher the applicable tax rate, the lower the aftertax cost of debt.Given this, which one of the following statements is correct? The firm's cost of equity is unaffected by a change in the firm's tax rate. Refer to section 14.4: The aftertax cost of debt: has a greater effect on a firm's cost of capital when the debt-equity ratio increases.Refer to section 14.3A firm has a cost of equity of 10 percent, a cost of preferred of 9 percent, and an aftertax cost of debt of 5 percent. Given this, which one of the following will decrease the firm's weighted average cost of capital? 1 redeeming the bond issue 2 decreasing the debt-equity ratio 3 issuing new equity securities 4 increasing the systematic risk level of the firm 5 issuing new debtA firm has a cost of equity of 13 percent, a cost of preferred of 11 percent, and an aftertax cost of debt of 6 percent. Given this, which one of the following will increase the firm's weighted average cost of capital? -Increasing the firm's tax rate -Issuing new bonds at par -Redeem…

Chapter 12 You'll Remember | Quizlet

Which one of these will increase a firm's aftertax cost of debt? Multiple Choice 0 a Decrease in the market value of the firm's outstanding bonds. 0 O a Decrease in the firm's tax rate. 0 An increase in the bond's credit rating 0 An increase in the firm's beta. 0 A Decrease in the market rate of interest.A Decrease in the market value of the firm?s outstanding bonds. A Decrease in the firm's tax rate. An increase in the bond's credit rating. An increase in the firm's beta.A. a decrease in the fixed costs B. a reduction in the net working capital requirement C. a reduction in the firm's tax rate D. an increase in the salvage value E. an increase in the required rate of return Refer to section 10.6 AACSB: N/A Bloom's: Comprehension Difficulty: Intermediate Learning Objective:10-3 Section: 10.6 Topic: Bid price 20.A firm has a cost of equity of 13 percent,a cost of preferred of 11 percent,and an aftertax cost of debt of 6 percent.Given this,which one of the following will increase the firm's weighted average cost of capital?The WACC may decrease as a firm's debt-equity ratio increases.b. When computing the WACC, the weight assigned to the preferred stock is based on the coupon rate multiplied by the par value of the stock. c. A firm's WACC will decrease as the corporate tax rate decreases. 24.

A firm has a cost of fairness of 10 %, a cost of most well-liked of nine percent, and an aftertax cost of debt of Five percent. Given this, which one of the following will decrease the firm's weighted reasonable cost of capital?

1 redeeming the bond issue

2 decreasing the debt-equity ratio

3 issuing new fairness securities

4 expanding the systematic chance degree of the firm

5 issuing new debt