InternationalFinancialManagement_5thEd_Eun_TestBank17

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17 Student: ___________________________________________________________________________ 1. The cost of capital is: A. The minimum rate of return an investment project must generate in order to pay its financing costs. B. The minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. C. The maximum rate of return an investment project must generate in order to pay its financing costs. D. The maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 2. For a firm that has both debt and equity in its capital structure, its financing cost can be represented by the weighted average cost of capital that is computed by: A. weighing the pre-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight B. weighing the after-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight C . where: K = weighted average cost of capital K l = cost of equity capital for a leveraged firm i = before-tax borrowing cost τ = marginal corporate income tax rate λ = debt-to-total-market-value ratio K = (1 - λ ) K l + λ (1 - τ ) i D. b) and c) 3. Which of these are correct? In the notation of the book, K = (1 - λ ) K l + λ (1 - τ ) i A. The debt-to-equity ratio is λ B. The tax rate is τ C. The after-tax cost of debt capital is i D. All of the above 4. Which of the following are correct? In the notation of the book, K = (1 - λ ) K l + λ (1 - τ ) i A. The debt-to-total market value ratio is λ B. The tax rate is i C. The after-tax cost of debt capital is i D. All of the above 5. Which of the following are correct? In the notation of the book, K = (1 - λ ) K l + λ (1 - τ ) i A. The debt-to-equity ratio is λ B. The cost of equity capital for a levered firm is K C. The pre-tax cost of debt capital is i D. All of the above
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6. Which of the following are correct? In the notation of the book, K = (1 - λ ) K l + λ 1 - τ ) i A. The debt-to-equity ratio is λ B. The cost of equity capital for a levered firm is K l C. The after-tax cost of debt capital is i D. All of the above 7. Which of the following are correct? In the notation of the book, K = (1 - λ ) K l + λ (1 - τ ) i A. The weighted average cost of capital for a levered firm is K B. The tax rate is τ C. The after-tax cost of debt capital is i D. All of the above 8. At the optimal capital structure, A. K = (1 - λ ) K l + λ (1 - τ ) i will be minimized B. The debt-equity ratio will be equal to the debt-to-value ratio. C. K = (1 - λ ) K l + λ (1 - τ ) i will be maximized D. None of the above 9. Solve for the weighted average cost of capital: A. 8.67% B. 8.00% C. 7.60% D. 7.33% E. 7.14% 10. Solve for the weighted average cost of capital: A. 8.67% B. 8.00% C. 7.60% D. 7.33% E. 7.14% 11. Solve for the weighted average cost of capital: A. 8.67% B. 8.00% C. 7.60% D. 7.33% E. 7.14%
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12. Solve for the weighted average cost of
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InternationalFinancialManagement_5thEd_Eun_TestBank17 - 17...

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