FIN6100 MODULE 2 EXAM QUESTIONS
WITH 100% CORRECT ANSWERS |
LATEST VERSION 2025/2026.
Cost of Capital Definition - ANS The cost of capital (WACC) is the overall interest rate that
companies pay to finance operations and assets, used in project valuation and investment
decisions.
What Determines WACC? - ANS WACC reflects the risk of the project, not just the funding
source. Different divisions and projects within a company may have different WACCs.
WACC Formula - ANS WACC = Wd Kd (1-T) + We Ke, where Wd and We are the weights of
debt and equity, and Kd and Ke are their respective costs.
Cost of Debt Definition - ANS The cost of debt (Kd) is the expected interest rate paid on
borrowed funds, based on project risk and repayment terms.
Sources of Debt Financing - ANS Debt financing can come from banks, selling bonds, or loans
from individuals or other companies.
Bond Terminology - ANS Maturity - Total life of bond; Face Value - Amount paid at maturity;
Coupon Payment - Periodic interest paid to bondholder.
Bond Indenture - ANS A legal contract specifying bond terms, including payment schedules,
maturity, and any options such as convertibility or callable features.
1 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
WITH 100% CORRECT ANSWERS |
LATEST VERSION 2025/2026.
Cost of Capital Definition - ANS The cost of capital (WACC) is the overall interest rate that
companies pay to finance operations and assets, used in project valuation and investment
decisions.
What Determines WACC? - ANS WACC reflects the risk of the project, not just the funding
source. Different divisions and projects within a company may have different WACCs.
WACC Formula - ANS WACC = Wd Kd (1-T) + We Ke, where Wd and We are the weights of
debt and equity, and Kd and Ke are their respective costs.
Cost of Debt Definition - ANS The cost of debt (Kd) is the expected interest rate paid on
borrowed funds, based on project risk and repayment terms.
Sources of Debt Financing - ANS Debt financing can come from banks, selling bonds, or loans
from individuals or other companies.
Bond Terminology - ANS Maturity - Total life of bond; Face Value - Amount paid at maturity;
Coupon Payment - Periodic interest paid to bondholder.
Bond Indenture - ANS A legal contract specifying bond terms, including payment schedules,
maturity, and any options such as convertibility or callable features.
1 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
