Question Details

firm's weighted-average




1.   If K is the cost of debt and t is the marginal tax rate, the after-tax cost of debt. ki, is  the best represented by        the formula 
a.  ki = k/t				 			c. ki = k(t)
b. ki = k/(1-t). 							d. ki = k(1-t)

2.	The three elements needed to estimate the cost of equity capital for use in determining a firm's weighted-average cost of capital are 
a.	Current dividends per share, expected growth rate in dividends per share, and, current book value per share of common stock.
b.	Current earnings per share, expected growth rate in dividends per share, and current market price per share of common stock.
c.	Current earnings per share, expected growth rate in earnings per share, and current book value per share of common stock.
d.	Current dividends per share, expected growth rate in dividends per share, the current market price per share of common its. 						

3.	The explicit cost of debt financing is the interest expense. The implicit cost (s) of debt financing is (are) the 
a.	Increase in the cost of debt as the debt-to-equity ratio increases.
b.	Increases in the cost of debt and equity as the debt-to-equity ratio increases.
c.	Increase in the cost of equity as the debt-to-equity ratio decrease.
d.	Decrease in the weighted-average cost of capital as the debt-to-equity  ratio increase.

4.	All of the following are examples of imputed costs except.
a.	The stated interest paid on a bank loan.
b.	The use of the firm- internal cash funds to purchase assets. 
c.	Assets that are considered obsolete that maintain a net book value.
d.	Decelerated depreciation				
 

5.	Assume that nominal interest has just increased substantially but that the expected future dividends for a company over the long run were not affected. As a result of the increase in nominal interest rates, the company- stock price should
a.	Increase				
b.	Stay constant
c.	Decrease				
d.	Change, but in no obvious direction. 




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