Chapter 14 finance

Assume a firm utilizes the security market line approach to determine the cost of equity. If the firm currently pays an annual dividend of $2.40 per share and has a beta of 1.42, all else constant, which of the following actions will decrease the firm's cost of equity?

A decrease in the firm's beta

Assume a firm utilizes the security market line approach to determine the cost of equity. If the firm currently pays an annual dividend of $3.36 per share and has a beta of 1.38, all else constant, which of the following actions will increase the firm's cost of equity?

A decrease in the risk-free rate

Which of the following statements regarding a firm's pretax cost of debt is accurate?

It is based on the current yield to maturity of the company's outstanding bonds.

When calculating a firm's weighted average cost of capital, the capital structure weights:

are based on the market values of the outstanding securities.

Wright Market Research is able to borrow money at a rate of 6.8 percent per year. This interest rate is called the:

cost of debt.

Okonjo Economics has a debt-equity ratio of .38. All of the firm's outstanding shares were purchased by a small number of investors. The return these investors require is called the:

cost of equity.

A firm's aftertax cost of debt will increase if there is a(n):

decrease in the company's tax rate.

When evaluating any capital project proposal, the cost of capital:

depends upon how the funds raised for that project are going to be spent.

The cost of preferred stock is equivalent to the:

rate of return on a perpetuity.