chapter 10

Chapter 10 - Question 1 1 Which of the following statements is CORRECT Answer The percentage flotation cost associated with issuing new common

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Question 1 1. Which of the following statements is CORRECT? Answer The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt. The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets. The WACC as used in capital budgeting would be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year. The WACC as used in capital budgeting is an estimate of a company’s before-tax cost of capital. There is an “opportunity cost” associated with using retained earnings, hence they are not “free.” 10 points Question 2 1. Which of the following statements is CORRECT? Answer The "break point" as discussed in the text refers to the point where the firm is taking on investments that are so risky the firm is in serious danger of going bankrupt if things do not go exactly as planned. The "break point" as discussed in the text refers to the point where the firm's tax rate increases. The "break point" as discussed in the text refers to the point where the firm has raised so
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This note was uploaded on 02/27/2012 for the course FIN FIN3403 taught by Professor C.kalogeras during the Fall '09 term at FIU.

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Chapter 10 - Question 1 1 Which of the following statements is CORRECT Answer The percentage flotation cost associated with issuing new common

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