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1) The weighted average cost of capital is computed using before-tax costs of each of the sources of financing that a firm uses to finance
1) The weighted average cost of capital is computed using before-tax costs of each of the sources of financing that a firm uses to finance a project. True/ False 2) J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm's tax rate is 40%, what is the after-tax cost of debt to J & B? A) 12.0% B) 14.0% C) 8.4% D) 5.6% 3) Sola Cola Corporation is undertaking a capital budgeting analysis. The rate on 10-year U.S Treasury bonds is 3.60%, and the return on the S & P 500 index is 11.6%. If the cost of Sola Cola's common equity is 19.6%, calculate their beta. A) 1.69 B) 5.4 C) 2.0 D) 1.38 4) Mortgage bonds A) are a type of debenture B) are secured by a lien on real property. C) usually pay little or no interest. D) can only be issued by financial institutions 5) Which of the following investors incurs the least risk? A) Bondholders B) Preferred stockholders C) Common stockholders D) All of the above bear equal risk
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