Fundamentals of Corporate Finance Study Set 23

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

The cost of preferred stock:

A firm's cost of capital:

Which one of the following is the primary determinant of a firm's cost of capital?

The pre-tax cost of debt:

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.

The weighted average cost of capital for a wholesaler:

A firm's overall cost of equity is:

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?

The cost of preferred stock is computed the same as the:

The cost of equity for a firm:

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:

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?

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.

The capital structure weights used in computing the weighted average cost of capital:

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.

The dividend growth model: