CFIN 5 Exam Questions and Answers –
Updated 2024
The advantage of using the marginal cost of capital as a company's average hurdle rate is -
Answer-capital market estimations of risk are probably more objective than the company's,
it reflects the incremental cost of funding future investments...
A target cost of capital is - Answer✔✔-always implied unless the term "existing" or "current" is
used, the capitalization that management is "shooting for", and the capitalization that will result
after an asset is financed
the marginal cost of capital is - Answer✔✔-the minimum cost of recreating a company's capital
structure in the current marketplace and used for an average hurdle rate because it includes the
market's assessment of future company risk
the marginal cost of debt is - Answer✔✔-an after tax cost because interest expenses are
deductible
the marginal cost of equity - Answer✔✔-should be derived from a comparison of several
available techniques
the cost of convertible funds - Answer✔✔-depends on whether or not a conversion has taken
place
If a convertible bond has been converted to common stock, then its current cost is the same as
the cost of retained earnings (T/F) - Answer✔✔-true
If a company consistently uses hurdle rates that are higher than its marginal cost of capital,
then: a. it will certainly increase its earnings, b. it may have fewer and fewer investment
alternatives, c. the risk of the firm will increase - Answer✔✔-B and C
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