When calculating WACC it is best to use which of the following costs:

a.Historical costs

b.Accounting costs

c.Current market costs

d.Predictive cost

Which of the following statements is correct?

Select one:

a.If the cost of a capital item is tax-deductable it reduces the cost of finance

b.In calculating the WACC objective book values should always be used

c.Ordinary shares tend to be a cheaper source of finance than debt

d.None of the above

In terms of capital structure, an indirect financial distress cost is a:

a.Cost associated with actual bankruptcy, e.g. legal and administrative expenses

b.Cost associated with provisional taxation

c.Cost associated with attempting to avoid bankruptcy, e.g. restructuring costs, redundancy costs

d.Cost associated with government consumption tax

Which of the following is not one of the perfect market assumptions of M & M:

a.A perfectly competitive market in which all investors have perfect knowledge and act rationally

b.Investors are uncertain about the future profitability of any company

c.All companies can be divided into homogenous risk classes

d.Individuals and companies can raise unlimited debt funds at the same rate of interest

Which of these represents the cash-flows generated by a firm's real assets that flow through to debt holders?

a.Profit

b.Interest

c.Dividends

d.Revenue

The weighted average cost of capital is:

a.Never going to be higher than the most expensive source of finance

b.Never going to be lower than the cheapest source of finance

c.Going to be higher the lower is the corporate tax rate

d.All of the above

Modigliani and Miller showed that in a world with no taxes as the degree of leverage increases:

a.equityholder's available and required rates of return increase in line with each other

b.the required rate of return on equity in a levered firm is lower than the required rate of return on equity in an un-levered firm

c.the value of a levered firm is higher than that of an equivalent un-levered firm

d.all of the above

In a Modigliani and Miller world of no taxes, as the proportion of debt financing increases:

Select one:

a.So does the proportion of equity funding

b.The cost of equityfinancing decreases as proportionately less of it is being used

c.The cost of debt decreases because of economies of scale

d.None of the above