FIN 320 smartbook chapter 12
Which of the following is true about a firm's cost of debt?
-Yields can be calculated from observable data -It is easier to estimate than the cost of equity.
The growth rate of dividends can be found using:
-historical dividend growth rates -security analysts' forecasts
Which of the following is tax-deductible to the firm?
coupon interest paid on bonds
True or false: Finding the cost of equity is fairly straightforward.
false
True or false: The cost of capital depends on the source of the funds.
falsw
Components of the WACC include funds that come from ______ .
investors
Finding a firm's overall cost of equity is difficult because:
it can not be observed directly
If a firm issues no debt, its average cost of capital will equal ___.
its cost of equity
In the WACC calculation, D represents the --------value of the firm's debt.
market
The most appropriate weights to use in the WACC are the ______ weights.
market value
The WACC of a firm reflects the -------and the target capital structure of the firm's existing assets as a whole.
risk
True or false: The cost of capital depends on the source of the funds.
false
True or false: The growth rate of dividends can be found using the CAPM.
false
True or false: The expected percentage is the overall rate of return the firm must earn on its existing assets to maintain the value of its stock.
false *the WACC is the correct answer
True or false: The discount rate is also known as the expected return.
false It is known as the required return, appropriate discount rate, and cost of capital.
True or false: According to the CAPM, if the market risk premium is zero, then the expected return on a stock is equal to the required return.
false it is equal to the risk free rate
According to the CAPM, what is the expected return on a stock if its beta is equal to zero?
the risk free rate
The cost of capital depends primarily on the ______ of funds, not the _____.
use; source
For a firm with outstanding debt, the cost of debt will be the ________ on that debt..
yield to maturity
What is the appropriate discount rate to use only if the proposed investment is a replica of the firm's existing operating activities?
WACC
Dividends paid to common stockholders ______ be deducted from the payer's taxable income for tax purposes. can
can not
The return an investor in a security receives is ______ _____ the cost of the security to the company that issued it.
equal to
If the firm is all-equity, the discount rate is equal to the firm's cost of ______ capital
equity
True or false: For publicly traded companies, the component of the dividend yield that must be estimated is the dividend.
false
True or false: In the WACC calculation, V = E - D.
false
The WACC is the overall rate of return the firm must earn on its existing assets to maintain the---- of its stock.
price
