Foundations of Financial Management Study Set 5
Quiz 11: Cost of Capital
A Firm Can Issue $1,000 Par Value Bond That Pays
A firm can issue $1,000 par value bond that pays $100 per year in interest at a price of $980. The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the after tax cost of debt? A) 10.53% B) 10.20% C) 6.85% D) 6.50%
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In computing the cost of common equity, if D
goes downward and P
goes up, K
will: A) go up. B) go down. C) stay the same. D) slowly increase.
If the flotation cost goes up, the cost of retained earnings will: A) go up. B) go down. C) stay the same. D) slowly increase.
Most firms are able to use _________ percent debt in their capital structure without exceeding norms acceptable to creditors and investors. A) 20-50 B) 30-60 C) 40-70 D) 50-80
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