COST OF CAPITAL

Which of the following processes is most likely to be applied to an asset beta to reflect the effect of financial leverage when estimating the beta of a nonpublic company?

• Adjusted beta.

•  Re-levering

• Unlevering

Which of the following statements is the most accurate?

• A. When flotation costs are incorporated into the cost of capital, the adjusted cost of capital is less than if flotation costs were not included.

• B. The preferred method for including flotation costs in the analysis is as an initial cash flow in valuation analysis.

• C. Whenever debt and preferred stock are raised, flotation costs are usually incorporated into the estimated cost of capital.

The return lenders require on loaned funds to a firm is called:

• Cost of debt

• Cost of equity

• Cost of capital

• Cost of preferred stock

The investor's required rate of return differs from the firm's cost of capital due to the

• firm's beta

•  tax deductible of interest

• CAPM

• time value of money

Which of the following must be adjusted for the firm's tax rate when estimating the weighted average cost of capital WACC?

• Cost of common equity

• Cost of preferred stock

• Cost of debt

• All of the above

The cost of preference share capital is calculated by

• 1. Dividing the price per preference share by the fixed dividend per share

• 1. Dividing the book value per preference share by the fixed dividend per share

• 1. Dividing the price per preference share by the fixed dividend per share and then adding the growth rate

• 1. Dividing the price per preference share by the fixed dividend per share and then adding the risk premium

The cost of capital for a firm

• 1. Is the return required on the total assets of a firm

• 1. Refers to the internal rate of return

• 1. Varies inversely with the overall cost of debt

• 1. None of the above

The cost of equity share or debt is known as

• 1. The specific cost of capital

• 1. The related cost of capital

• 1. The burden on the shareholder

• 1. None of the above

In weighted average cost of capital, an organisation can affect its cost of capital through

• 1. The policy of investment

• 1. The policy of capital structure

• 1. The policy of dividends

• 1. All of the above

What is Marginal Cost?

• 1. It is the additional cost of capital when the company decides to raise finance for its operations

• 1. It is the weighted average cost of raising finance

• All the above

• 1. It is the cost of raising an additional unit of capital