Five Multiple Choices:

1.The primary determinant of the value of a share of stock is the:

• present value of expected net income.

• present value of an expected stream of future dividends.

• EPS of the firm.

• revenues of the firm.

2. The firm's cost of capital is also called its:

• Required rate of return.

• Beta.

• NOI.

• Ke.

3. Which of the following is correct?

• The cost of preferred stock is normally lower than the after-tax cost of debt.

• The cost of retained earnings is normally higher than the cost of new common stock.

• Flotation costs raise the cost of capital.

• The current yield on a share of stock is the stock price divided by earnings per share.

4. The correct sequence in calculating WACC is:

• market value-> book value-> weighting -> after-tax cost->cost x weight

• book value-> market value-> weighting-> after-tax cost-> cost x weight

• book value-> weighting-> after-tax cost-> market value

• book value-> weighting-> after-tax cost-> cost x weight

5. Cost of capital should be determined by:

• the costs of funds raised to fund investments in the future.

• the cost of retained earnings only.

• the cost of individual sources of funds raised specifically to fund the project.

• the costs of funds raised to fund investments in the past.