CFIN CH 11 NEW 100% SOLVED CORRECTLY
Which of the following is a true statement regarding the appropriate tax rate to be used
in the WACC?
A. One would use the marginal tax rate that the firm paid the prior year.
B. One would use the average tax rate that the firm paid the prior year.
C. One would use the weighted average of the marginal tax rates that would have been
paid on the taxable income shielded by the interest deduction.
D. One would use the marginal tax rates that would have been paid on the taxable
income shielded by the interest deduction. - ANSWER C. One would use the weighted
average of the marginal tax rates that would have been paid on the taxable income
shielded by the interest deduction.
When calculating the weighted average cost of capital, weights are based on
A. book values.
B. book weights.
C. market values.
D. market betas. - ANSWER C. market values.
These are fees paid by firms to investment bankers for issuing new securities.
A. flotation costs
B. interest expense
C. seller financing charges
D. user fees - ANSWER A. flotation costs
Which of the following statements is correct?
A. The weighted average cost of capital is computed on a before-tax basis.
B. An increased market risk premium will tend to raise the weighted average cost of
, capital.
C. The weights for debt and equity should be based on the balance sheet because that
provides the most realistic view of valuation.
D. All of the above statements are correct. -ANSWER B. An increase in the market risk
premium is likely to increase the weighted average cost of capital.
Which of the following statements is correct?
A. If the risk-free rate increases, it will have no impact on the weighted average cost of
capital.
B. Investor returns are reduced when float costs increase, and hence float costs reduce
the weighted average cost of capital.
C. The weighted average cost of capital is a historical cost.
D. None of these statements is correct. - ANSWER D. None of these statements is
correct
Which of the following will impact the cost of equity component in the weighted average
cost of capital?
A. The risk-free rate
B. Beta
C. Expected return on the market
D. All of these - ANSWER D. All of these
Which of the following will directly impact the cost of equity?
A. Expected growth rate in sales
B. Expected future tax rates
C. Stock price
D. Profit margins - ANSWER C. Stock price
Which of the following will directly impact the cost of debt?
Which of the following is a true statement regarding the appropriate tax rate to be used
in the WACC?
A. One would use the marginal tax rate that the firm paid the prior year.
B. One would use the average tax rate that the firm paid the prior year.
C. One would use the weighted average of the marginal tax rates that would have been
paid on the taxable income shielded by the interest deduction.
D. One would use the marginal tax rates that would have been paid on the taxable
income shielded by the interest deduction. - ANSWER C. One would use the weighted
average of the marginal tax rates that would have been paid on the taxable income
shielded by the interest deduction.
When calculating the weighted average cost of capital, weights are based on
A. book values.
B. book weights.
C. market values.
D. market betas. - ANSWER C. market values.
These are fees paid by firms to investment bankers for issuing new securities.
A. flotation costs
B. interest expense
C. seller financing charges
D. user fees - ANSWER A. flotation costs
Which of the following statements is correct?
A. The weighted average cost of capital is computed on a before-tax basis.
B. An increased market risk premium will tend to raise the weighted average cost of
, capital.
C. The weights for debt and equity should be based on the balance sheet because that
provides the most realistic view of valuation.
D. All of the above statements are correct. -ANSWER B. An increase in the market risk
premium is likely to increase the weighted average cost of capital.
Which of the following statements is correct?
A. If the risk-free rate increases, it will have no impact on the weighted average cost of
capital.
B. Investor returns are reduced when float costs increase, and hence float costs reduce
the weighted average cost of capital.
C. The weighted average cost of capital is a historical cost.
D. None of these statements is correct. - ANSWER D. None of these statements is
correct
Which of the following will impact the cost of equity component in the weighted average
cost of capital?
A. The risk-free rate
B. Beta
C. Expected return on the market
D. All of these - ANSWER D. All of these
Which of the following will directly impact the cost of equity?
A. Expected growth rate in sales
B. Expected future tax rates
C. Stock price
D. Profit margins - ANSWER C. Stock price
Which of the following will directly impact the cost of debt?
