BUS333 Week 10 Homework Questions-help

BUS333 Week 10 Homework Questions-help - Chapter 14 - Cost...

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Chapter 14 - Cost of Capital 1. A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called? A. dividend yield B. cost of equity C. capital gains yield D. cost of capital E. income return 2. A firm's cost of capital: A. will decrease as the risk level of the firm increases. B. for a specific project is primarily dependent upon the source of the funds used for the project. C. is independent of the firm's capital structure. D. should be applied as the discount rate for any project considered by the firm. E. depends upon how the funds raised are going to be spent. 3. The weighted average cost of capital for a wholesaler: A. is equivalent to the aftertax cost of the firm's liabilities. B. should be used as the required return when analyzing a potential acquisition of a retail outlet. C. is the return investors require on the total assets of the firm. D. remains constant when the debt-equity ratio changes. E. is unaffected by changes in corporate tax rates. 4. Which one of the following is the primary determinant of a firm's cost of capital? A. debt-equity ratio B. applicable tax rate C. cost of equity D. cost of debt E. use of the funds 5. A firm's overall cost of equity is: A. is generally less that the firm's WACC given a leveraged firm. B. unaffected by changes in the market risk premium. C. highly dependent upon the growth rate and risk level of the firm. D. generally less than the firm's aftertax cost of debt. E. inversely related to changes in the firm's tax rate. 14-1
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Chapter 14 - Cost of Capital 6. The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations? I. firms that have a 100 percent retention ratio II. firms that pay a constant dividend III. firms that pay an increasing dividend IV. firms that pay a decreasing dividend A. I and II only B. I and III only C. II and III only D. I, II, and III only E. II, III, and IV only 7. Which one of the following statements related to the SML approach to equity valuation is correct? Assume the firm uses debt in its capital structure. A. This model considers a firm's rate of growth. B. The model applies only to non-dividend paying firms.
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This note was uploaded on 04/09/2011 for the course BUS 333 taught by Professor Christesen during the Spring '11 term at CUNY City.

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BUS333 Week 10 Homework Questions-help - Chapter 14 - Cost...

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