The cost of new common equity willQuestion 1 options:a)Increase as flotation

The cost of new common equity will
Increase as flotation
costs increase
Decrease as flotation costs increase
Increase as flotation costs decrease
Increase as the tax rate increases
Question 2 (2 points)
Assuming no change to a company’s overall risk level, if a project’s return equals the company’s cost of capital
It should increase the company’s stock price (build shareholder wealth)
It should maintain the company’s stock price (maintain shareholder wealth)
It should decrease the company’s stock price (destroy shareholder wealth)
We can’t predict its impact on the company’s stock price
Question 3 (2 points)
Issues of new stock, either common or preferred, have a higher cost due to
Flotation costs associated with the new issues
Shareholder expectations the new issue should lead to higher returns
Increased risk in the company’s capital structure
Risk of dilution of future earnings
Question 4 (2 points)
Assuming no change to a company’s overall risk level, if a project’s return exceeds the company’s cost of capital
Question 5 (2 points)
As the amount of financing increases,
The cost of capital may increase
The cost of capital may decrease
The cost of capital would not be impacted
We don’t have enough information to determine
Question 6 (2 points)
If a company is considering a new project and will finance it entirely by common equity, the project should be measured against
The cost of equity
The cost of debt
The cost of preferred equity
The weighted average cost of capital
Question 7 (2 points)
Marginal cost of capital is
A measure of the volatility of returns on an individual stock relative to the market
Relates the risk-return trade-offs of individual assets to the market returns
The computed cost of capital determined by multiplying the cost of each item in the optimal capital structure by its weighted presentation in the overall capital structure and summing up the results
The cost of the last dollar of funds raised
Question 8 (2 points)
We use Kn = (D1 / (P0 – F)) + g to calculate
The after-tax cost of debt
Cost of common equity
Cost of new common stock
Cost of preferred stock
Question 9 (2 points)
Retained earnings
Is one of the most important sources of capital for a company
Has a higher cost than debt
Also represents the cost of common equity
All of these apply
Question 10 (2 points)
The optimum capital structure
Provides the lowest cost of capital
Has the best mix of debt, preferred stock, and common equity
Can change over time as market and firm conditions change
Question 11 (2 points)
In calculating the cost of common equity using Ke = (D1 / P0) + g, D1 is the
Price of the stock today
Dividend at the end of the first year (or period)
Required rate of return
Constant growth rate in dividends
Question 12 (2 points)
A company with a WACC of 8.5% is considering two possible investments. Either will be financed by debt costing 6%, and Project A will return 8% and Project B will return 7%. Which project should the company undertake?
Neither project
Both projects
Question 13 (2 points)
In the capital asset pricing model, Kj = Rf + B(Km – Rf), Rf is the
Required return on common stock
Risk-free rate of return
Measure of the historical volatility of the stock compared to the market index
Return expected in the market
Question 14 (2 points)
Which of these would result in a lower after-tax cost of debt?
Increase in corporate tax rate
Decrease in corporate tax rate
Increase in the company’s risk level
None of these would lower the after-tax cost of debt
Question 15 (2 points)
The Capital asset pricing model is
The cost of the last dollar of funds raised