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