Question Details

financial characteristics 






1. The cost of common stock is the rate of return stockholder's require on the firm's common stock.
a. True b. False

2) A company has a capital structure which consists of 50 percent debt and 50 percent equity. Which of the following
statements is most correct?
a. The cost of equity financing is greater than or equal to the cost of debt financing.
b. The WACC exceeds the cost of equity financing.
c. The WACC is calculated on a before-tax basis.
d. The WACC represents the cost of capital based on historical averages. In that sense, it does not represent the
marginal cost of capital.
e. As a firm increases its weight of debt (i.e. becomes more levered), we generally expect the beta of the firm to decrease.

3) The constant dividend growth model may be used to find the price of a stock in all of the following situations except:
a. when the expected dividend growth rate is less than the discount rate.
b. when the expected dividend growth rate is negative.
c. when the expected dividend growth rate is zero.
d. when the expected dividend growth rate is more than the expected return.
e. the constant growth model works in all known circustances, it never fails.
4) The firm's business risk is largely determined by the financial characteristics of its industry.
A) True B) False

5) Historically which of the following BEST describes the correct order of returns? (lowest to highest)? Assume the corporate bonds, preferred stock and common stock is for a single (the same) company.
a. T-bills, T-bonds, Corporate bonds, Preferred Stocks, Common Stocks
b. T-bills, T-bonds, Corporate Bonds, Common Stocks, Preferred Stocks
c. T-bonds, Corporate bonds, T-bills, Common Stocks, Preferred Stocks
d. Preferred Stocks, T-bills, T-bonds, Corporate bonds, Common Stocks
e. Common Stocks, Preferred Stocks, Corporate Bonds, T-bills, T-bonds





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