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CFIN 5 Exam Questions and Complete Solutions Graded A+
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CFIN 5 Exam Questions and Complete Solutions Graded A+
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CFIN 5 ExamQuestions and
Complete Solutions
Graded A+
Denning [Date] [Course title]
, The advantage of using the marginal cost of capital as a company's average hurdle rate is - Answer:
capital market estimations of risk are probably more objective than the company's, it reflects the
incremental cost of funding future investments, and it is the basis of the market's assessments of a
company's investment decisions
It is important for managers to establish an average hurdle rate because:a. hurdle rates are varied in
accordance with risk, b. in order to vary hurdle rates, one must have a frame of reference, c. no two
investments can be analyzed using the same hurdle rate. - Answer: hurdle rates are varied in
accordance with risk, & in order to vary hurdle rates, one must have a frame of reference
If a firm's marginal weighted average cost of capital is 15%, an appropriate hurdle rate for investments
of lower-than average risk to the firm would be: a. 14.5%, b. 15%, c. 12%, d 18%, e. 20% - Answer: 12%
The cost of capital can be defined as - Answer: the weighted average cost of attracting investors to the
firm, the price of obtaining funding for the firm, weighted according to the target ratios in the capital
structure, the weighted average return that investors in the firm require
A target cost of capital is - Answer: always implied unless the term "existing" or "current" is used, the
capitalization that management is "shooting for", and the capitalization that will result after an asset is
financed
the marginal cost of capital is - Answer: the minimum cost of recreating a company's capital structure
in the current marketplace and used for an average hurdle rate because it includes the market's
assessment of future company risk
the marginal cost of debt is - Answer: an after tax cost because interest expenses are deductible
the marginal cost of equity - Answer: should be derived from a comparison of several available
techniques
the cost of convertible funds - Answer: depends on whether or not a conversion has taken place
If a convertible bond has been converted to common stock, then its current cost is the same as the cost
of retained earnings (T/F) - Answer: true
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