Which of the following is a difference between debt and equity capital? A) Debt capital does not require periodic payments, whereas equity capital requires period payments. B) Debt capital requires returns in proportion to profits, whereas equity capital requires a fixed rate of return. C) Debt capital provides a tax shield, whereas equity capital does […]
The most fundamental services that governments provide to firms are: a. the establishment of product and financial markets. b. the regulation of industries. c. the establishment of property rights and the enforcement of legal contracts. d. building infrastructure and monitoring managers. ANSWER D
Which of the following are tax-deductible expenses for corporations? A) Interest expenses B) Preferred stock dividends C) Common stock dividends D) All are tax-deductible for corporations. ANSWER Answer: A
Which of the following is the proper way to adjust the cost of debt to estimate the after-tax cost of debt? A) Rd ÷ (1 + Tc) B) Rd ÷ (1 – Tc) C) Rd × (1 – Tc) D) Rd × (1 + Tc) ANSWER Answer: C
When calculating the after-tax weighted average cost of capital (WACC), which of the following costs is adjusted for taxes in the equation? A) The before-tax cost of equity B) The before-tax cost of debt C) The before-tax cost of preferred stock D) The after-tax cost of debt ANSWER Answer: B Explanation: B) WACCadj […]
Revenue stability affects ________. A) dividend risk B) maturity risk C) business risk D) interest rate risk ANSWER C
Your firm has preferred stock outstanding that pays a current dividend of $2.00 per year and has a current price of $21.50. Currently, preferred stock makes up approximately 15% of your firm’s long-term financing. What is the market required rate of return on your firm’s preferred stock? A) 8.70% B) 9.00% C) 9.30% D) 15.00% […]
Pricing preferred stock is most similar to pricing ________. A) constant growth common stock B) a perpetuity C) a zero-coupon bond D) a three-month Treasury bill ANSWER Answer: B
The cost of debt could be which of the following? A) The required return on money borrowed as a long-term loan from a bank B) The required return on money borrowed from a venture capitalist C) The yield-to-maturity on money raised by selling bonds D) All of the choices above could be considered the cost […]
In capital budgeting, the ________ is the appropriate discount rate to use when calculating the NPV of an average risk project. A) WACC B) IRR C) cost of debt D) cost of Equity ANSWER Answer: A
