FIN 3300-03 Chapter 13 Exercise Questions – Part 2 Winter 2010 1. Capital structure decisions refer to the: A) dividend yield of the firm's stock. B) blend of equity and debt used by the firm. C) capital gains available on the firm's stock. D) maturity date for the firm's securities. 2. The company cost of capital, after tax, for a firm with a 60/40 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be: A) 7.02% B) 9.12% C) 10.80% D) 13.80% 3. What is the pretax cost of debt for a firm in the 35% tax bracket that has a 9% after-tax cost of debt? A) 5.85% B) 12.15% C) 13.85% D) 25.71% 4. Which of the following statements is incorrect concerning the equity component of the WACC? A) The value of retained earnings is not included. B) Market values should be used in the calculations. C) Preferred equity has a separate component. D) There is a tax shield such as with debt. 5.
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