Font size
WorksheetsMaster of Reading 30
Total questions: 10
Worksheet time: 4mins
What are the capital components?
Debt
Equity
Preferred stock
Asset
Tax
What is the definition of Weighted Average Cost of Capital (WACC)?
the rate of return that the suppliers of capital require as compensation for their contribution of capital
the minimum rate of return or profit a company must earn before generating value
the rate of return required by a company’s common stockholders
a weighted average of the after-tax marginal costs of each source of capital
Which methods are used to estimate cost of equity?
Yield-to-maturity approach
Dividend discount model
Bond yield plus risk premium method
Debt-rating approach
Capital Asset Pricing Model Approach
Which of the following must be adjusted for the firm's tax rate when estimating the weighted average cost of capital WACC?
cost of capital
cost of debt
cost of common equity
cost of preferred stock
In many countries, what is considered as tax-deductible of debt?
interest payments
marginal cost of debt
cost of debt
marginal tax rate
How many methods to calculate the cost of debt?
1
2
3
4
Company C is planning to issue new debt at an interest rate of 7.5%. The company has a 40% marginal federal-plus-state tax rate. What is the cost of debt company C?
(a)
Which features affect the cost of preferred stock?
Call option
Expected return on a stock
Adjustable-rate dividends
Put option
Cumulative dividends
What is the cost of equity of company A?
(a)
Which company has a higher cost of equity?
A
B
