Ch 10a - Question 1(1 point You were hired as a consultant...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Question 1 (1 point) You were hired as a consultant to Kroncke Company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC? Student response: Student Response Answer Choices a. 9.48% b. 9.78% c. 10.07% d. 10.37% e. 10.68% Score:1 / 1 Question 2 (1 point) Which of the following statements is CORRECT? Student response: Student Respons e Answer Choices a. A change in a company's target capital structure cannot affect its WACC. b . WACC calculations should be based on the before-tax costs of all the individual capital components. c. Flotation costs associated with issuing new common stock normally reduce the WACC. d . If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline. e. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Score:1 / 1 Question 3 (1 point) Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: r RF = 5.00%; RP M = 6.00%; and b = 0.90. Based on the CAPM approach, what is the cost of equity from retained earnings? Student response:
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 6

Ch 10a - Question 1(1 point You were hired as a consultant...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online