Solved by verified expert :81. Which of the following statements is
correct?
A. The weighted average cost of capital is calculated on a before-tax
basis.
B. An increase in the market risk premium is likely to increase the
weighted average cost of capital.
C. The weights of debt and equity should be based on the balance sheet
because this is the most accurate assessment of the valuation.
D. All of these statements are correct.
82. Which of the following statements is
correct?
A. If the risk-free rate increases, it will have no impact on the weighted
average cost of capital.
B. Investor returns are reduced when float costs increase, and therefore
float costs reduce the weighted average cost of capital.
C. The weighted average cost of capital is a historical cost.
D. None of these statements is correct.
83. Which of the following will impact the cost of
equity component in the weighted average cost of capital?
A. The risk-free rate
B. Beta
C. Expected return on the market
D. All of these
84. ADK Industries common shares sell for $40 per
share. ADK expects to set their next annual dividend at $1.75 per share. If ADK
expects future dividends to grow at 7% per year, indefinitely, the current
risk-free rate is 4%, the expected rate on the market is 11%, and the stock has
a beta of 1.2, what should be the best estimate of the firm’s cost of
equity?
A. 11.89%
B. 11.38%
C. 12.40%
D. 12.71%
85. ADK Industries common shares sell for $60 per
share. ADK expects to set their next annual dividend at $3.75 per share. If ADK
expects future dividends to grow at 9% per year, indefinitely, the current
risk-free rate is 4%, the expected rate on the market is 11%, and the stock has
a beta of 1.5, what should be the best estimate of the firm’s cost of equity?
A. 15.25%
B. 14.50%
C. 14.88%
D. 15.03%
86. Which of the following will directly impact the
cost of equity?
A. Expected growth rate in sales
B. Expected future tax rates
C. Stock price
D. Profit margins
87. Which of the following will directly impact the
cost of debt?
A. Capital Structure
B. Debt Ratio
C. Coupon Rate
D. Competition within the industry
88. ADK has 30,000 15-year 9% annual coupon bonds
outstanding. If the bonds currently sell for 111% of par and the firm pays an
average tax rate of 36%, what will be the before-tax and after-tax component
cost of debt?
A. 7.74%; 4.95%
B. 7.91%; 5.06%
C. 8.05%; 5.15%
D. 9%; 5.76%
89. ADK has 30,000 15-year 9% semi-annual coupon bonds
outstanding. If the bonds currently sell for 90% of par and the firm pays an
average tax rate of 32%, what will be the before-tax and after-tax component
cost of debt?
A. 11.19%; 7.61%
B. 10.32%; 7.02%
C. 9.85%; 6.70%
D. 10.12%; 6.88%
90. An estimated WACC computed using some sort of
proxy for the average equity risk of the projects in a particular business unit
is known as the ____________.
A. Business unit WACC
B. Pure play beta
C. Divisional WACC
D. Component cost
