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ch14 study questions

ch14 study questions - ch14 Student 1 A group of...

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ch14 Student: ___________________________________________________________________________ 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. Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the: 3. The average of a firm's cost of equity and aftertax cost of debt that is weighted based on the firm's capital structure is called the: 4. When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project, the manager is utilizing the _____ approach. 5. 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. 6. The weighted average cost of capital for a wholesaler: 7. Which one of the following is the primary determinant of a firm's cost of capital?
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8. Scholastic Toys is considering developing and distributing a new board game for children. The project is similar in risk to the firm's current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firm's rapid growth. How should the firm determine its cost of equity?
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