公司理財(cái) 習(xí)題庫 Chap015

1、CHAPTER 15Cost of CapitalI.DEFINITIONSCOST OF CAPITALa1.The opportunity cost associated with the firms capital investment in a project is called its:a.cost of capital.b.beta coefficient.c.capital gains yield.d.sunk ernal rate of return.COST OF EQUITYb2.The return that shareholders require

2、on their investment in the firm is called the:a.dividend yield.b.cost of equity.c.capital gains yield.d.cost of capital.e.income return.COST OF DEBTc3.The return that lenders require on their loaned funds to the firm is called the:a.coupon rate.b.current yield.c.cost of debt.d.capital gains yield.e.

3、cost of capital.CAPITAL STRUCTURE WEIGHTSd4.The proportions of the market value of the firms assets financed via debt, common stock, and preferred stock are called the firms:a.financing costs.b.portfolio weights.c.beta coefficients.d.capital structure weights.e.costs of capital.WACCe5.The weighted a

4、verage of the firms costs of equity, preferred stock, and aftertax debt is the:a.reward to risk ratio for the firm.b.expected capital gains yield for the stock.c.expected capital gains yield for the firm.d.portfolio beta for the firm.e.weighted average cost of capital (WACC).DIVISIONAL COST OF CAPIT

5、ALa6.For a firm with multiple business units, the cost of capital developed for each unit is called a:a.divisional cost of capital.b.pure play approach.c.subjective risk adjustment.d.stratified beta coefficient.e.fundamental beta coefficient.PURE PLAY APPROACHb7.When firms develop a WACC for individ

6、ual projects based on the cost of capital for other firms in similar lines of business as the project, the firm is utilizing a _ approach.a.subjective riskb.pure playc.divisional cost of capitald.capital adjustmente.security market lineFLOTATION COSTSc8.The costs incurred by the firm when new issues

7、 of stocks or bonds are sold are called:a.required rates of return.b.costs of capital.c.flotation costs.d.capital structure weights.e.costs of equity and debt.II.CONCEPTSCOST OF CAPITALe9.The cost of capital:a.will decrease as the risk level of a firm increases.b.is primarily dependent on the source

8、 of the funds used in a project.c.implies that a project will produce a positive net present value only when the rate of return on the project is less than the cost of capital.d.remains constant for all projects sponsored by the same firm.e.depends on how the funds are going to be utilized.COST OF C

9、APITALc10.The overall cost of capital for a retail store:a.is equivalent to the after-tax cost of the firms liabilities.b.should be used as the required return when analyzing a potential acquisition of a wholesale distributor.c.reflects the return investors require on the total assets of the firm.d.

10、remains constant even when the debt-equity ratio changes.e.is unaffected by changes in corporate tax rates.COST OF EQUITYd11.A firms overall cost of equity is:I.directly observable in the financial markets.II.unaffected by changes in the market risk premium.III.highly dependent upon the growth rate

11、and risk level of a firm.IV.an estimate only.a.I and III onlyb.II and IV onlyc.I and II onlyd.III and IV onlye.I and IV onlyCOST OF EQUITYb12.The cost of equity for a firm is:a.determined by directly observing the rate of return required by equity investors. b.based on estimates derived from financi

12、al models.c.equivalent to a leveraged firms cost of capital.d.equal to the risk-free rate of return plus the market risk premium.e.equal to the risk-free rate of return plus the dividend growth rate.DIVIDEND GROWTH MODELc13.The dividend growth model:a.can be used to estimate the cost of equity for a

13、ny corporation.b.is applicable only to firms that pay a constant dividend.c.is highly dependent upon the estimated rate of growth.d.is considered quite complex.e.considers the risk of the firm.DIVIDEND GROWTH MODELc14.The dividend growth model:a.generally produces the same estimated cost of equity f

14、or a firm regardless of the source of information used to predict the rate of growth.b.can only be used if historical dividend information is available.c.ignores the risk that future dividends may vary from their estimated values.d.assumes that both the dividend amount and the stock price are not co

15、nstant over time.e.uses beta to measure the systematic risk of the firm.SECURITY MARKET LINE APPROACHa15.The market risk premium:a.varies over time as both the risk-free rate of return and the market rate of return vary.b.plus the risk-free rate of return equals the cost of capital for any firm with

16、 a beta of zero.c.is equal to one percent for a risk-free asset.d.is equal to the risk-free rate of return multiplied by the beta of a firm.e.is modified by the standard deviation when computing the cost of equity.SECURITY MARKET LINE APPROACHe16.Which of the following statements are correct concern

17、ing the security market line (SML) approach?I.The SML approach considers the amount of systematic risk associated with an individual firm.II.The SML approach can be applied to more firms than the dividend growth model can.III.The SML approach generally relies on the past to predict the future.IV.The

18、 SML approach generally assumes that the reward-to-risk ratio is constant.a.I and III onlyb.II and IV onlyc.III and IV onlyd.I, II, and III onlye.I, II, III, and IVCOST OF DEBTa17.The pre-tax cost of debt for a firm:a.is equal to the yield to maturity on the outstanding bonds of the firm.b.is equal

19、to the coupon rate of the outstanding bonds of the firm.c.is equivalent to the current yield on the outstanding bonds of the firm.d.is based on the yield to maturity that existed when the currently outstanding bonds were originally issued.e.has to be estimated as it cannot be directly observed in th

20、e market.COST OF DEBTd18.The after-tax cost of debt generally increases when:I.a firms bond rating increases.II.the market rate of interest increases.III.tax rates decrease.IV.bond prices decline.a.I and III onlyb.II and III onlyc.I, II, and III onlyd.II, III, and IV onlye.I, II, III, and IVCOST OF

21、PREFERRED STOCKd19.The cost of preferred stock is computed the same as:a.the pre-tax cost of debt.b.an annuity.c.the after-tax cost of debt.d.a perpetuity.e.an irregular growth common stock.COST OF PREFERRED STOCKa20.The cost of preferred stock:a.is equal to the dividend yield on the stock.b.is equa

22、l to the yield to maturity.c.is highly dependent on the growth rate.d.varies directly with the stocks price.e.is difficult to determine.CAPITAL STRUCTURE WEIGHTSd21.The capital structure weights used in computing the weighted average cost of capital are:a.constant over time provided that the debt-eq

23、uity ratio changes in unison with the market values.b.based on the face value of the firms puted using the book value of the long-term debt and the shareholders equity.d.based on the market value of the firms debt and equity securities.e.limited to the firms debt and common stock.CAPITAL S

24、TRUCTURE WEIGHTSc22.Your firm uses both preferred and common stock as well as long-term debt to finance its operations. Which one of the following will increase the capital structure weight of the debt, all else equal?a.an increase in the market price of the common stockb.an increase in the number o

25、f shares of preferred stock outstandingc.an increase in the quoted price of the firms bonds as a percentage of face valued.the exercise of warrants by company employeese.the conversion of convertible bonds into equity sharesWEIGHTED AVERAGE COST OF CAPITALe23.The weighted average cost of capital for

26、 a firm is dependent upon the firms:I.tax rate.II.debt-equity ratio.III.coupon rate on the preferred stock.IV.level of risk.a.I and III onlyb.II and IV onlyc.I, II, and IV onlyd.I, III, and IV onlye.I, II, III, and IVWEIGHTED AVERAGE COST OF CAPITALb24.The weighted average cost of capital for a firm

27、 is the:a.discount rate which the firm should apply to all of the projects it undertakes.b.overall rate which the firm must earn on its existing assets to maintain the value of its stock.c.rate the firm should expect to pay on its next bond issue.d.maximum rate which the firm should require on any p

28、rojects it undertakes.e.rate of return that the firms preferred stockholders should expect to earn over the long term.WEIGHTED AVERAGE COST OF CAPITALe25.Which one of the following statements is correct concerning the weighted average cost of capital (WACC)?a.The pre-tax rate of return on the debt i

29、s the rate that is relevant to the computation of the WACC.b.When computing the WACC, the weight assigned to the preferred stock is equal to the coupon rate multiplied by the par value assigned to the preferred stock.c.A firms WACC will decrease as their corporate tax rate decreases.d.The weight of

30、the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share.e.The weight of the debt can be based on the face value of the bond issue(s) outstanding multiplied by the quoted price(s) when expressed as a percentage of the fa

31、ce value.WEIGHTED AVERAGE COST OF CAPITALd26.If a firm uses its WACC as the discount rate for all of the projects it undertakes then the firm will tend to:I.reject some positive net present value projects.II.accept some negative net present value projects.III.favor low risk projects over high risk p

32、rojects.IV.become riskier over time.a.I and III onlyb.III and IV onlyc.I and II onlyd.I, II, and IV onlye.I, II, III, and IVDIVISIONAL COST OF CAPITALd27.Swanson & Sons has two separate divisions. Each division is in a separate line of business. Division A is the largest division and represents

33、65 percent of the firms overall sales. Division A is also the riskier of the two divisions. Division B is the smaller and least risky of the two. When the company is deciding which of the various divisional projects should be accepted they should:a.allocate more funds to Division A since it is the l

34、argest of the two divisions.b.fund all of Division Bs projects first since they tend to be less risky and then allocate the remaining funds to the Division A projects that have the highest net present values.c.allocate the company funds to the projects with the highest net present values based on th

35、e firms weighted average cost of capital.d.assign different discount rates to each project and then select the projects with the highest net present values.e.fund the highest net present value projects from each division based on an allocation of 65 percent of the funds to Division A and 35 percent

36、of the funds to Division B.DIVISIONAL COST OF CAPITALa28.If a firm applies its overall cost of capital to all its proposed projects, then the divisions within the firm will tend to:a.receive more funding if they represent the riskiest operations of the firm.b.avoid risky projects so that they will r

37、eceive more funding.c.become less risky over time based on the projects that are accepted.d.have equal probabilities of receiving funding for their pose less risky projects than if separate discount rates were applied to each project.PROJECT COST OF CAPITALe29.The discount rate assigne

38、d to an individual project should be based on:a.the firms weighted average cost of capital.b.the actual sources of funding used for the project.c.an average of the firms overall cost of capital for the past five years.d.the current risk level of the overall firm.e.the risk level of the project itsel

39、f.PROJECT COST OF CAPITALa30.Assigning separate discount rates to individual projects when determining which projects should be accepted by the firm:a.may cause the firms overall weighted average cost of capital to vary over time if the projects accepted change the overall risk level of the firm.b.w

40、ill cause the firms overall cost of capital to remain constant over time.c.will cause the firms overall cost of capital to decrease over time.d.will change the debt-equity ratio of the firm over time.e.negates the principle goal of creating the most value for the shareholders.PROJECT COST OF CAPITAL

41、e31.The cost of capital assigned to an individual project should be that rate which:a.corresponds to the risk level of the firms division which has responsibility for the project.b.corresponds to the source of the funds used for the project.c.corresponds to the latest pre-tax cost of debt and equity

42、 for the overall firm.d.is the firms current weighted average cost of capital.e.considers both the nature and the characteristics of the actual project.PURE PLAY APPROACHd32.Waynes of New York specializes in clothing for female executives living and working in the financial district of New York City

43、. Allens of PA. specializes in clothing for women who live and work in the rural areas of Western Pennsylvania. Both firms are currently considering expanding their clothing line to encompass working women in the rural upstate region of New York state. Waynes currently has a cost of capital of 11 pe

44、rcent while Allens cost of capital is 9 percent. The expansion project has a projected net present value of $36,900 at a 9 percent discount rate and a net present value of -$13,200 at an 11 percent discount rate. Which firm or firms should expand into rural New York state?a.Waynes onlyb.Allens onlyc

45、.neither Waynes nor Allensd.both Waynes and Allense.cannot be determined from the information providedPURE PLAY APPROACHd33.The Jasper Mountain Co. specializes in back-country camping facilities across the nation. The Plan It Co. specializes in making travel reservations and promoting vacation trave

46、l. Jasper has an after-tax cost of capital of 12 percent and Plan It has an after-tax cost of capital of 10 percent. Both firms are considering building wilderness campgrounds complete with their own lakes and numerous mountain trails. The estimated net present value of such a project is estimated a

47、t $13,000 at a discount rate of 10 percent and -$6,500 (negative) at a 12 percent discount rate. Which firm or firms, if either, should accept this project?a.Jasper onlyb.Plan It onlyc.both Jasper and Plan Itd.neither Jasper nor Plan Itecannot be determined without further informationSUBJECTIVE APPR

48、OACHd34.The subjective approach to project analysis:a.is used only when the firms cost of capital is unknown.b.uses the market rate of return as the base rate which is then adjusted for the risk level of each project.c.is a purely random allocation of discount rates to various projects.d.allows mana

49、gers to adjust for the risk level of each project without knowing the actual beta of the project.e.uses the beta of each project to determine the appropriate discount rate for the project.SUBJECTIVE APPROACHd35.When a firm uses the subjective approach to assign discount rates to projects, the firm:I

50、.will assign its highest discount rate to those projects which are mandated by the government.II.risks accepting projects which should have been rejected.III.risks rejecting projects which should have been accepted.IV.generally makes better decisions than it would if it applied the firms weighted av

51、erage cost of capital to all projects.a.I and III onlyb.II and IV onlyc.I, II, and III onlyd.II, III, and IV onlye.I, II, III, and IVFLOTATION COSTS AND WACCe36.When a firm has flotation costs equal to 6 percent of the funding need, it should:a.increase the weighted average cost of capital (WACC) to

52、 offset these expenses by multiplying the WACC by 1.06.b.increase the weighted average cost of capital (WACC) to offset these expenses by dividing the WACC by (1 - .06).c.add 6 percent to the weighted average cost of capital to get the discount rate for the project.d.increase the initial project cos

53、t by multiplying that cost by 1.06.e.increase the initial project cost by dividing that cost by (1 - .06).FLOTATION COSTS AND WACCb37.The flotation cost for a firm is computed as:a.the arithmetic average of the flotation costs of both debt and equity.b.the weighted average of the flotation costs ass

54、ociated with each form of financing.c.the geometric average of the flotation costs associated with each form of financing.d.one-half of the flotation cost of debt plus one-half of the flotation cost of equity.e.a weighted average based on the book values of the firms debt and equity.FLOTATION COSTS

55、AND NPVd38.Including flotation costs into the net present value of a project will:a.not affect that net present value.b.increase the net present value of the project.c.increase the discount rate applied to the project thereby lowering the projects net present value.d.increase the initial cash outflow of the project thereby lowering the projects net present va