Font size
WorksheetsAPT ACCA Cost of Capital
Total questions: 22
Worksheet time: 11mins
A firm should use .............. when evaluating an investment
the least costly source of financing
the most costly source of financing
the weighted average cost of all financing sources
the current opportunity cost
A corporation has concluded that its financial risk premium is too high. In order to decrease this, the firm can
increase the proportion of long term debt to decrease the cost of capital
increase the proportion of short term debt to decrease the cost of capital
decrease the proportion of common stock equity to decrease financial risk
increase the proportion of common stock equity to decrease financial risk
Choose the right statement from the following:
Cost of debt is always higher than cost of equity
Cost of debt is always lower than cost of equity
Cost of debt can be higher or lower than cost of equity
When company doesn't pay dividend, the cost of equity is zero
A firm has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year. The growth rate in dividends has been 5%. The cost of the firm's commonstock equity is
5%
8%
10%
13%
The Capital Structure of a company means
the proportion between LT debt and equity
the proportion between liability and equity
the proportion between liability and total asset
the proportion between ST debt + LT debt and equity
Cost of capital can be divided into three item except;
Cost of debt
Cost of preferred share
Cost of investment
Cost of common share
Y Ltd. issues 14% prefernce shares of face value of Rs.100 each whch realizes Rs.92 per share for the company. The shares are repayable after 12 years at par. Calcualate the cost of preference shares.
(a)
The market price of equity shares of NG Ltd. is Rs.140. If annual dividend expected by the investors is Rs.30 per share, determine the cost of capital.
(a)
The market price of equity shares of a comapny is Rs.150. The comapny had paid a dividend of Rs.30 last year. The investors expect a growth of 5% in dividend every year. Clacualte the cost of equity capital.
(a)
Beta represents ............. Risk.
Systematic Risk
Unsystematic Risk
Total Risk
Default Risk
From the following information calculate expected return from XYZ Ltd.- Risk free rate is 5 % , Market return is 10% and Beta value is 0.5 of XYZ Ltd.
5%
7.5%
10%
15%
From the following information you have to calculate Risk Premium.
Risk free rate is 10%, market return is 15% and beta is 1.5.
5%
17.5%
15%
10%
From the following information find out that stock is over performer or under performer .
Rf is 5%, market Return is 10% , beta is 0.5 and actual return is 10%.
Over performer
Under performer
A "More risky " common stock would have a "beta"
Equal to Zero
More then one
Less then One
Equal to One
According to the capital-asset pricing model (CAPM), a security's expected return is equal to the risk-free rate plus a premium
equal to the security's beta.
based on the unsystematic risk of the security.
based on the total risk of the security.
based on the systematic risk of the security.
If a security plots below the security market line, it is:
ignoring all of the security's specific risk
underpriced, a situation that should be temporary
offering too little return to justify its risk
a defensive security, which expects to offer lower returns
What is the beta of a U.S. Treasury bill?
1.0
−1.0
0
Unknown
A project has a beta of 1.24, the risk-free rate is 3.8%, and the market rate of return is 9.2%. What is the project's expected rate of return?
15.21%
11.41%
10.50%
14.61%
Which one of these statements is correct?
Betas can be measured exactly.
If a stock has a very low beta, it is likely to have a high beta in the future
The expected future risk premium is easy to accurately determine
CAPM is widely used as a means of estimating expected returns
What would happen to the after tax cost of debt if there is an increase in the corporate tax rate:
will increase
will decrease
will remain the same
Which of these sources of financing have the highest priority in case of financial trouble:
bonds
preferred stocks
common stocks
In order to calculate Weighted Average Cost of weights may be based on:
Market values
Book values
Both
None
