Finance Learnsmart Chapter 12

Including preferred stock in the WACC formula adds which term if P is the market value of preferred stock and Rp is the cost of preferred?

(P/V) x Rp

A firm's capital structure consists of 40 percent debt and 60 percent equity. The aftertax yield on debt is 2.5 percent and the cost of equity is 15 percent. The project is about as risky as the overall firm. What discount rate should be used to estimate the project's net present value?

10%

If an analysts forecast for a firm's earnings growth is 7 percent

10%

a firm's capital structure consists of 40 percent debt

10%

A company has a borrowing rate of 15 percent and a tax rate of 30 percent. What is its aftertax cost of debt

10.5%

MNO

6%

If a firm is funded with $400 in debt and $1200 in equity

75%; 25%

WACC was used to compute the following

A and D

Which of the following are true?

Ideally, we should use market values in the WACC; Book values are often similar to market values for debt

If D is the market value...

[E/V] x Re + [D/V] x R0 x (1-Tc)

Dividends paid to common stockholders _____ be deducted from the payer's taxable income for tax purposes

cannot

To estimate the dividend yield of a particular stock, we need:

forecasts of the dividend growth rate, g; the last dividend paid, D0; the current stock price

The most appropriate weights to use in the WACC are the _____ weights

market value

To estimate a firm's equity cost of capital using the CAPM, we need to know the _____

stock's beta; market risk premium; risk-free rate

If a firm uses its overall cost

too many