2201AFE_Tutorial_08

# 2201AFE_Tutorial_08 - 2201AFE Corporate Finance TOPIC Cost...

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2201AFE Corporate Finance TOPIC: Cost of Capital 25 Multiple-Choice Questions 1. The opportunity cost associated with the firm’s capital investment in a project is called its: a. cost of capital. b. beta coefficient. c. capital gains yield. d. sunk cost. e. internal rate of return. 2. The return that shareholders require on their investment in the firm is called the: a. dividend yield. b. cost of equity. c. capital gains yield. d. cost of capital. e. income return. 3. The return that lenders require on their loaned funds to the firm is called the: a. coupon rate. b. current yield. c. cost of debt. d. capital gains yield. e. cost of capital. 4. The proportions of the market value of the firm’s assets financed via debt, common stock, and preferred stock are called the firm’s: a. financing costs. b. portfolio weights. c. beta coefficients. d. capital structure weights. e. costs of capital. 5. The weighted average of the firm’s costs of equity, preferred stock, and aftertax debt is the: a. reward to risk ratio for the firm. b. expected capital gains yield for the stock. c. expected capital gains yield for the firm. d. portfolio beta for the firm. e. weighted average cost of capital (WACC).

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6. For a firm with multiple business units, the cost of capital developed for each unit is called a: a. divisional cost of capital. b. pure play approach. c. subjective risk adjustment. d. stratified beta coefficient. e. fundamental beta coefficient. 7. When firms develop a WACC for individual projects based on the cost of capital for other firms in similar lines of business as the project, the firm is utilizing a _____ approach. a. subjective risk b. pure play c. divisional cost of capital d. capital adjustment e. security market line 8. The costs incurred by the firm when new issues of stocks or bonds are sold are called: a. required rates of return. b. costs of capital. c. flotation costs. d. capital structure weights. e.
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2201AFE_Tutorial_08 - 2201AFE Corporate Finance TOPIC Cost...

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