HFT 4464 FINAL EXAM QUESTIONS WITH
COMPLETE ANSWERS
T/F: Taxes are a relevant cost that should be accounted for in the firm's weighted
average cost of capital. - ANSWER True
T/F: Preferred stock has higher seniority than bonds and common stock. - ANSWER
False
T/F: The cost of capital raised by the issuance of bonds is typically lower than the cost of
capital raised from the issuance of preferred stock or common stock. - ANSWER True
T/F: The weights in a firm's weighted average cost of capital should be a measure of the
firm's target capital structure. - ANSWER True
T/F: Issuance or flotation costs are the costs investors pay to brokers when they
purchase common stock. - ANSWER False
T/F: Issuance costs consist of fees paid to investment bankers and lawyers who assist a
corporation issue bonds, preferred stock, or common stock. - ANSWER True
Which of the following is typically not treated as one of the components of capital in cost
of capital schedule calculations?
a. long-term debt
b. common equity
c. short-term debt
d. preferred stock - ANSWER short-term debt
COMPLETE ANSWERS
T/F: Taxes are a relevant cost that should be accounted for in the firm's weighted
average cost of capital. - ANSWER True
T/F: Preferred stock has higher seniority than bonds and common stock. - ANSWER
False
T/F: The cost of capital raised by the issuance of bonds is typically lower than the cost of
capital raised from the issuance of preferred stock or common stock. - ANSWER True
T/F: The weights in a firm's weighted average cost of capital should be a measure of the
firm's target capital structure. - ANSWER True
T/F: Issuance or flotation costs are the costs investors pay to brokers when they
purchase common stock. - ANSWER False
T/F: Issuance costs consist of fees paid to investment bankers and lawyers who assist a
corporation issue bonds, preferred stock, or common stock. - ANSWER True
Which of the following is typically not treated as one of the components of capital in cost
of capital schedule calculations?
a. long-term debt
b. common equity
c. short-term debt
d. preferred stock - ANSWER short-term debt
