Fundamentals of Corporate Finance Study Set 23

Business

Quiz 14 :

Raising Capital

Quiz 14 :

Raising Capital

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Textile Mills borrows money at a rate of 13.5 percent.This interest rate is referred to as the:
Free
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C

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The cost of preferred stock:
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A

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A firm's cost of capital:
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E

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Which one of the following is the primary determinant of a firm's cost of capital?
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The pre-tax cost of debt:
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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.
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The weighted average cost of capital for a wholesaler:
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A firm's overall cost of equity is:
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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?
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The cost of preferred stock is computed the same as the:
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The cost of equity for a firm:
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The average of a firm's cost of equity and aftertax cost of debt that is weighted based on the firm's capital structure is called the:
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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.
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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?
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Which one of the following statements related to the SML approach to equity valuation is correct? Assume the firm uses debt in its capital structure.
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The capital structure weights used in computing the weighted average cost of capital:
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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
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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.
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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.
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The dividend growth model:
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