Question
1....A firm has $1,000 par value bonds currently selling for $975. The bonds have a coupon rate of 11% and are paying interest semiannually. The
1....A firm has $1,000 par value bonds currently selling for $975. The bonds have a coupon rate of 11% and are paying interest semiannually. The bonds are due to reach maturity in 15 years. If the firm's tax rate is 30%, what cost of debt should be used in arriving at the firm's weighted-average cost of capital? Select one: A. 7.95% B. 6.16% C. 8.95% D. 10.16%
2....
A firm's debt-to-equity ratio varies at times because is a firm: I. Will want to take advantage of timing its fund raising in order to minimize costs over the long run II. Is allowed some leeway in its debt-to-equity ratio before being penalized by the market with a higher cost of capital III. Will try to sell common stock when prices are high and bonds when interest rates are low
Select one:
A. I only
B. I and II only
C. I and III only
D. I, II, and III
3......
Which is true about debt financing and the weighted-average cost of capital?
I. Debt is often a cheaper source of financing than equity
II. As the level of debt increases beyond the optimum capital structure, the cost of capital can be expected to increase
III. No debt in the firm's capital structure will usually minimize the firm's weighted-average cost of capital
Select one:
A. I only
B. I and II only
C. I and III only
D. I, II, and III
4....
The firm's weighted-average cost of capital is likely to _________________ if debt financing is used to excess.
Select one:
A. increase
B. decrease
C. remain unchanged
D. collapse
5....
If flotation costs go down, the cost of new preferred stock will:
Select one:
A. Increase
B. Decrease
C. Remain unchanged
D. Fluctuate
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