Quiz Ch 12 – Correct Statements on Capital Structure and Cost of Capital
Essentials of Corporate Finance
Ross, Westerfield, and Jordan
10th Edition
Which is correct given that the pretax cost of debt is less than the cost of equity?
Which is correct given that the pretax cost of debt is less than the cost of equity?
What statement is correct assuming all other factors remain constant?
In an efficient market, how does the cost of equity for a highly risky firm relate to its level of risk?
When assigning discount rates to specific projects, Kelly’s firm applies different adjustments to its weighted average cost of capital (WACC). Which of the following factors should be the primary consideration for determining the amount of adjustment for a specific project?
When utilizing the pure play approach for a proposed investment, which factor is the firm primarily seeking in order to determine an appropriate rate of return?
What is the main factor influencing the cost of capital for an investment?
When computing the firm’s weighted average cost of capital (WACC), which rate should the firm use as the cost of equity, given a return on equity of 12.4 percent according to the dividend growth model, a return of 18.7 percent according to the capital asset pricing model, and a market rate of return of 13.5 percent?
Which option is used to calculate the pretax cost of debt?
Which approach is Kate, the CFO of a major firm, applying when assigning discount rates to projects based on their risk levels?
Considering all else constant, what are the effects of an increase in a firm’s cost of debt?