Financial Management Final Exam With
100% Accurate Solutions | 2025
cost of capital CORRECT ANSWERS the firm's cost of financing; the minimum rate of
return that a project must earn to increase firm value
cost of debt CORRECT ANSWERS financing cost associated with new funds through
long-term borrowing
net proceeds CORRECT ANSWERS the funds actually received by the firm from the
sale of a security; equals selling price - flotation costs
flotation costs CORRECT ANSWERS the total costs of issuing and selling a security. 2
kinds: underwriting costs and administrative costs
underwriting costs CORRECT ANSWERS a flotation cost; compensation earned by
investment bankers for the selling of a security
administrative costs CORRECT ANSWERS a flotation cost; issuer expenses such as
legal, accounting, and printing
cost of preferred stock CORRECT ANSWERS the ratio of the preferred stock dividend
to the firm's net proceeds (selling price - floating costs); equals D/ NP
cost of common stock equity CORRECT ANSWERS the rate at which investors
discount the expected dividends of the firm to determine its share value
constant-growth valuation (Gordon model) CORRECT ANSWERS valuation of common
stock for a dividend paying company; assumes that the value of a share of stock equals
the present value of all future dividends that it is expected to provide over an infinite life
time
cost of retained earnings CORRECT ANSWERS equal to the cost of common stock
equity
capital asset pricing model (CAPM) CORRECT ANSWERS describes the relationship
between the required return and the nondiversifiable risk of the firm as measured by
beta
cost of new common stock CORRECT ANSWERS the cost of common stock, net of
underpricing and associated floating costs
underpriced CORRECT ANSWERS if the stock is sold at a price below its current
market price
100% Accurate Solutions | 2025
cost of capital CORRECT ANSWERS the firm's cost of financing; the minimum rate of
return that a project must earn to increase firm value
cost of debt CORRECT ANSWERS financing cost associated with new funds through
long-term borrowing
net proceeds CORRECT ANSWERS the funds actually received by the firm from the
sale of a security; equals selling price - flotation costs
flotation costs CORRECT ANSWERS the total costs of issuing and selling a security. 2
kinds: underwriting costs and administrative costs
underwriting costs CORRECT ANSWERS a flotation cost; compensation earned by
investment bankers for the selling of a security
administrative costs CORRECT ANSWERS a flotation cost; issuer expenses such as
legal, accounting, and printing
cost of preferred stock CORRECT ANSWERS the ratio of the preferred stock dividend
to the firm's net proceeds (selling price - floating costs); equals D/ NP
cost of common stock equity CORRECT ANSWERS the rate at which investors
discount the expected dividends of the firm to determine its share value
constant-growth valuation (Gordon model) CORRECT ANSWERS valuation of common
stock for a dividend paying company; assumes that the value of a share of stock equals
the present value of all future dividends that it is expected to provide over an infinite life
time
cost of retained earnings CORRECT ANSWERS equal to the cost of common stock
equity
capital asset pricing model (CAPM) CORRECT ANSWERS describes the relationship
between the required return and the nondiversifiable risk of the firm as measured by
beta
cost of new common stock CORRECT ANSWERS the cost of common stock, net of
underpricing and associated floating costs
underpriced CORRECT ANSWERS if the stock is sold at a price below its current
market price
