BusFin.WK6.quiz - Although debt financing is usually the...

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Although debt financing is usually the cheapest component of capital, it cannot be used to excess because Question 1 options: A) interest rates may change. B) the firm's stock price will increase and raise the cost of equity financing. C) the financial risk of the firm may increase and thus drive up the cost of all sources of financing. D) underwriting costs may change. Save Question 2 (1 point) If a firm's bonds are currently yielding 8% in the marketplace, why would the firm's cost of debt be lower? Question 2 options: A) Interest rates have changed. B) Additional debt can be issued more cheaply than the original debt. C) There should be no difference; cost of debt is the same as the bond's market yield. D) Interest is tax-deductible. Save Question 3 (1 point) The overall weighted average cost of capital is used instead of costs for specific sources of funds because Question 3 options: A) use of the cost for specific sources of capital would make investment decisions inconsistent. B) a project with the highest return would always be accepted under the specific cost criteria. C) investments funded by low cost debt would have an advantage over other investments. D) both a and c are correct. Save Question 4 (1 point)
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For a firm paying 7% for new debt, the higher the firm's tax rate Question 4 options: A) the higher the after-tax cost of debt. B) the lower the after-tax cost of debt. C) after-tax cost is unchanged. D) Not enough information to judge. Save Question 5 (1 point) The coupon rate on an issue of debt is 12%. The yield to maturity on this issue is 14%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds? Question 5 options: A) 4.34% B) 3.72% C) 9.66% D) 8.28% Save Question 6 (1 point) The coupon rate on a debt issue is 12%. If the yield to maturity on the debt is 9.33%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 34%? Question 6 options: A) 3.17% B) 4.08% C) 6.16% D) 7.92%
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Save Question 7 (1 point) Debreu Beverages has an optimal capital structure that is 50% common equity, 40% debt, and 10% preferred stock. Debreu's pretax cost of equity is 12%. It's pretax cost of preferred equity is 7%, and it's pretax cost of debt is also 7%. If the corporate tax rate is 35%, what is the weighted average cost of capital. Question 7 options: A) between 7% and 8%, B) between 8% and 9%. C) between 9% and 10%. D) between 10% and 12%. Save Firm X has a tax rate of 30%. The price of its new preferred stock is $63 and its flotation cost is $3.15. The cost of new preferred stock is 12%. What is the firm's dividend? Question 8 options: A) $7.18 B) $5.03 C) $7.56 D) none of the above. Save
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This note was uploaded on 05/15/2011 for the course FINC 350-A taught by Professor Mason during the Spring '09 term at Columbia College.

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BusFin.WK6.quiz - Although debt financing is usually the...

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