The aftertax cost of debt generally increases when:
I.a firm's bond rating increases.
II.the market rate of interest increases.
III.tax rates decrease.
IV.bond prices rise.
Scholastic Toys is considering developing and distributing a new board game for children.The project is similar in risk to the firm's current operations.The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firm's rapid growth.How should the firm determine its cost of equity?
Which of the following statements are correct?
I.The SML approach is dependent upon a reliable measure of a firm's unsystematic risk.
II.The SML approach can be applied to firms that retain all of their earnings.
III.The SML approach assumes a firm's future risks are similar to its past risks.
IV.The SML approach assumes the reward-to-risk ratio is constant.
A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc.What is the return that these individuals require on this investment called?
The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations?
I.firms that have a 100 percent retention ratio
II.firms that pay a constant dividend
III.firms that pay an increasing dividend
IV.firms that pay a decreasing dividend
All else constant, which one of the following will increase a firm's cost of equity if the firm computes that cost using the security market line approach? Assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2.
When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project, the manager is utilizing the _____ approach.