FIN 3403 Final Exam Questions With Correct Answers

FIN 3403 Final Exam Questions With Correct
Answers


Capital components - CORRECT ANSWER✔✔-Things on the right side of the
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balance sheet (total liabilities/debt and total equity)
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Any increase in assets must be financed through? - CORRECT ANSWER✔✔-An
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increase in the capital components (debt, preferred stock, and common stock)
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A firm's cost of capital is... - CORRECT ANSWER✔✔-the wighted average of the
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costs of all its sources of capital
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Common sources of capital for a firm - CORRECT ANSWER✔✔-(1) Equity in the
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form of either retained earnings or common stock,
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(2) Preferred stock,
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or (3) Debt by the issuing of corporate bonds
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The cost of capital for a firm= - CORRECT ANSWER✔✔-the weighted average of
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their component costs or said another way, the weighted average of the cost of
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each source |




Weight of debt - CORRECT ANSWER✔✔-the portion of a firm's assets that are
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purchased using debt financing; usually expressed as a percentage and can be
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calculated according to the equation | | | |

, Weight of debt = - CORRECT ANSWER✔✔-weight of debt = D / V
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D is the amount of debt
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V is the firm value
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*we generally find the weight of debt by multiplying (# of bonds)*(price per
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bond)


V (firm value) = - CORRECT ANSWER✔✔-V (firm value) = value of the debt + value
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of the preferred + value of the equity
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Cost of debt - CORRECT ANSWER✔✔-the yield to maturity of a bond
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-using debt gives a firm a tax shelter; high interest means lower taxable income at
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|the expense of additional risk
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-debt is also know as financial leverage; using leverage can be a very good thing
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for the stockholders of the company
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-we are interested in the marginal debt; that is newly issued debt, not the
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interest rate the firm pays on currently outstanding debt; the rate at which the
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firm has borrowed in the past is irrelevant
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Is interest paid before or after taxes? - CORRECT ANSWER✔✔-Interest is paid
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before tax dollars | |