Corporate Finance Questions and Correct Answers & Latest Updated
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Course
Corporate Finance
Institution
Corporate Finance
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?
o :## Cost of equity
Textile Mills borrows money at a rate of 13.5 percent. This interest rate is refe...
Corporate Finance Questions and Correct
Answers & Latest Updated
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?
o :## Cost of equity
Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the:
o :## Cost of debt
The average of a firm's cost of equity and after tax cost of debt that is weighted based on
the firm's capital structure is called the:
o :## WACC
A firm's cost of capital:
o :## Depends upon how the funds raised are going to be spent.
The weighted average cost of capital for a wholesaler:
o :## Is the return investors require on the total assets of the firm.
High Adventure is considering a new project that is similar in risk to the firm's current
operations. The firm maintains a debt-equity ratio of .55 and retains all profits to fund the
firm's rapid growth. How should the firm determine its cost of equity?
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
, 2|Page: 2024/2025 Grade A+
o :## By using the capital asset pricing model.
Which one of the following statements related to the capital asset pricing model approach
to equity valuation is correct? Assume the firm uses debt in its capital structure.
o :## The model is dependent upon a reliable estimate of the market risk premium.
The pretax cost of debt:
o :## Is based on the current yield to maturity of the firm's outstanding bonds.
Which one of these will increase a firm's aftertax cost of debt?
o :## a Decrease in the firm's tax rate.
Which one of these statements is correct?
o :## The optimal capital structure maximizes shareholder value.
Which one of the following is a marketed claim against a firm's cash flows?
o :## Principal payment on long-term debt.
Which one of the following states that the value of a firm is unrelated to the firm's capital
structure?
o :## M&M Proposition I, no tax.
Which one of the following states that a firm's cost of equity capital is directly and
proportionally related to the firm's capital structure?
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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