When estimating the cost of debt financing from bonds, a firm can use the yield-to-maturity as the before-tax cost of debt. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
For which of the periods below was U.S. macroeconomic performance poorest? a. 1960-1973 b. 1974-1982 c. 1983-2000 ANSWER B
Date: September 19th, 2020
The textbook labels preferred stock as “hybrid equity financing.” Identify and explain the features of preferred stock that give it the designation of “hybrid equity financing.” What will be an ideal response? ANSWER Answer: Preferred stock is identified as a hybrid equity security because even though it is equity, it has features of […]
Date: September 19th, 2020
Conduct a DuPont ROE breakdown analysis for each firm. Which breakdown ratio is most important in explaining ROE differential between the two firms? a. profit margin b. total asset turnover c. leverage ANSWER A
Date: September 19th, 2020
The ________ is the return that the bank or bondholder demands on new borrowing. A) IRR B) WACC C) cost of equity D) cost of debt ANSWER Answer: D
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
In capital budgeting, the appropriate decision rule for an average-risk project is to accept if the ________ is greater than the WACC. A) NPV B) IRR C) cost of equity D) cost of debt ANSWER Answer: B
Date: September 19th, 2020
Which of the statements below is NOT true? A) Preferred stock is a form of hybrid equity financing. B) Retained earnings are a form of hybrid equity financing. C) Common stock is a form of equity financing. D) Corporate bonds are a form of debt financing. ANSWER Answer: B Explanation: B) Retained earnings […]
Date: September 19th, 2020
The weighted average cost of capital is ________. A) the average of the cost of each financing component, weighted by the proportion of each component B) the cost of capital for the firm as a whole C) made up of three financing components: the cost of debt, the cost of preferred stock, and the cost […]
Date: September 19th, 2020
