A firm has a cost of equity of 13 percent a cost of

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Intermediate Accounting: Reporting and Analysis
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Chapter TVMM / Exercise MM-9
Intermediate Accounting: Reporting and Analysis
Jones/Wahlen
Expert Verified
28. A firm has a cost of equity of 13 percent, a cost of preferred of 11 percent, and an aftertax cost of debt of 6 percent. Given this, which one of the following will increase the firm's weighted average cost of capital? A. Increasing the firm's tax rateB. Issuing new bonds at parC. Redeeming shares of common stockD. Increasing the firm's betaE. Increasing the debt-equity ratio
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Intermediate Accounting: Reporting and Analysis
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Chapter TVMM / Exercise MM-9
Intermediate Accounting: Reporting and Analysis
Jones/Wahlen
Expert Verified
Chapter 12 - Cost of Capital29. All else constant, the weighted average cost of capital for a risky, levered firm will decrease if:
30. A firm that uses its weighted average cost of capital as the required return for all of its investments will:
31. Old Town Industries has three divisions. Division X has been in existence the longest and has the most stable sales. Division Y has been in existence for five years and is slightly less risky than the overall firm. Division Z is the research and development side of the business. When allocating funds, the firm should probably:
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Chapter 12 - Cost of Capital32. A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions. By doing so, the firm: A. automatically gives preferential treatment in the allocation of funds to its riskiest division.B. encourages the division managers to only recommend their most conservative projects.C. maintains the current risk level and capital structure of the firm.D. automatically maximizes the total value created for its shareholders.E. allocates capital funds evenly amongst its divisions.

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