Question 3

Which of the following is NOT considered as a capital component for the purpose of calculating the weighted average cost of capital (WACC)?

long-term debt.

Accruals.

Common stock.

Preferred stock.

Question 4

Which one of the following is a logical assumption concerning capital structure weights?

The weights are not constant over time.

A new bond issue will increase the weight of the firm's preferred stock.

The redemption of a bond issue will increase the weight of the firm's debt.

Question 5

If D represents debt, E represents equity, and P represents preferred, then the capital structure weight of debt is computed as:

E/D

D/(D+E+P)

E/(D+E+P)

Question 6

Suppose your company has an equity beta of 1.0 and the current risk-free rate is 6.0%. If the expected market risk premium is 8.6%, what is your cost of equity capital?

8.1%

9.6%

10.3%

14.6%.

Question 7

A stock sells for $20 per share, its next dividend expected to pay (D1) is $1.00, and its growth rate is a constant 6%. What is its cost of common stock?

		5.3%
		11.0%
		11.3%
		11.6%

Question 8

If a firm's before-tax cost of preferred stock is 10% and the firm has a 35% marginal tax rate, what is the firm's after-tax cost of preferred stock?

		6.5%
		3.5%
		10.0%
		None of above is correct.

E/ (E+P)