100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
FIN 701 Final Exam Questions with Correct Answers $15.49   Add to cart
Quickly navigate to
Preview
  2.  
  3. FIN701
  4.  
  5. FIN701

Exam (elaborations)

FIN 701 Final Exam Questions with Correct Answers
 5 views  0 purchase
  • Course
  • FIN701
  • Institution
  • FIN701

A company's current cost of capital is based on A) Only the return required by the company's current shareholders B) Current market rate of return on equity shares C) weight costs of all future funding sources D) both returns currently required by its debtholders and stockholders - Answer-D) bo...

[Show more]

Preview 2 out of 10  pages

Document information

  • August 23, 2024
  • 10
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

Subjects

  • fin 701 final exam questions with correct answers
  • a companys current cost of capital is based on

Written for

  • FIN701
  • FIN701

Seller

avatar-seller
lectknancy

Reviews received

Content preview

FIN 701 Final Exam Questions with
Correct Answers
A company's current cost of capital is based on
A) Only the return required by the company's current shareholders
B) Current market rate of return on equity shares
C) weight costs of all future funding sources
D) both returns currently required by its debtholders and stockholders - Answer-D) both
returns currently required by its debtholders and stockholders

All else constant, which one of the following will increase a company's cost of equity if
the company computes that cost using the security market line approach? Assume the
firm currently pays an annual dividend of $1 a share and has a beta of 1.2.
A) reduction in the dividend amount
B) an increase in the dividend amount
C) A reduction in the market rate of return
D) A reduction in the firm's beta
E) A reduction in the risk free rate - Answer-E) A reduction in the risk free rate

Assume russo's has a dept equity ratio of .4 and uses the capital asset pricing model to
determine its cost of equity. As a result, the company's cost of equity
A) is affected by the firm's rate of growth projections
B) implies that the firm pays out all of its earnings to its shareholders
C) is dependent upon a reliable estimate of the market risk premium
D) would be unaffected if the dividend discount model were applied instead
E) will be unaffected by changes in overall market risks. - Answer-C) is dependent upon
a reliable estimate of the market risk premium

A group of individuals got together and purchased all of the outstanding shares of
common stock DL smith inc. What is the return that these individuals require on this
investment called
A) dividend yield
B) cost of equity
C) capital gains yield - Answer-B) cost of equity

Textile Mills borrows money at a rate of 8.7 percent. This interest rate is referred to as
the:
A) compound rate
B) current yield
C) cost of debt - Answer-C) cost of debt

Which one of these will increase a company's aftertax cost of debt
A) A decrease in the company's debt-equity ratio

, B) a decrease in the company's tax rate - Answer-B) A decrease in the company's tax
rate

The cost of preferred stock is computed the same as the:
A) pretaxt cost of debt
B) rate of return on an annuity
C) aftertaxt cost of debt
D) Rate of return on a perpetuity - Answer-D) Rate of return on a perpetuity

A company's weighted average cost of capital:
A) is equivalent to the aftertax cost of the outstanding liabilities
B) should be used as the required return when analyzing any new project
C) is the return investors require on the total assets of the firm - Answer-C) is the return
investors require on the total assets of the firm

The average of a company's cost of equity, cost of preferred and aftertax cost of debt
that is weighted based on the company's capital structure is called:
A) reward to risk ratio
B) weighted capital gains rate
C)structured cost of capital
D) subjective cost of capital.
E) weighted average cost of capital - Answer-E) weighted average cost of capital

If a company uses its WACC as the discount rate for all of the projects it undertakes
then the company will tend to:
A) accept all positive net present value projects
B) increase the average risk level of the company over time. - Answer-B) increase the
average risk level of the company over time.

The subjective approach to project analysis:
A) is used only when a firm has an all equity capital structure
B) uses the WACC of Firm X as the basis for the discount rate for a project under
consideration by firm Y
C) assigns discount rates to projects based on the discretion of the senior managers of
a firm. - Answer-C) assigns discount rates to projects based on the discretion of the
senior managers of a firm.

When a manager develops a cost of capital for a specific project based on the cost of
capital for another firm which has a similar line of business as the project, the manager
is utilizing the _____ approach.
A) subjective risk
B) pure play - Answer-Pure play

Which one of these describes an exception to the registration filing requirements of the
SEC
A) loans that mature in one year or less

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller lectknancy. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $15.49. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

77254 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$15.49
  • (0)
  Add to cart