CHAPTER 11 QUIZ FINANCIAL
MANAGEMENT QUESTIONS AND
ANSWERS GRADED A+
i The cost of new common stock is greater than the cost of outstanding common stock.
T or F - True
The discount rate that equates a future stream of expected dividends to the current price is a good
approximation of the cost of common stock.
True
False - True
Ke represents an expected return to stockholders as well as a cost to the firm.
True
False - True
Regardless of the particular source of funds utilized for a project, the required rate of return, or discount
rate, will be the weighted average cost of capital.
True
False - true
Taking on additional debt will reduce the cost of equity.
True
False - False
Market values rather than book values should be used for determining the optimal capital structure;
however, in practice, book value is commonly used.
True
False - True
The pretax cost of debt is generally less than the pretax cost of equity.
True
False - true
It is standard practice to evaluate investment decisions using the cost of the specific financing method
involved.
MANAGEMENT QUESTIONS AND
ANSWERS GRADED A+
i The cost of new common stock is greater than the cost of outstanding common stock.
T or F - True
The discount rate that equates a future stream of expected dividends to the current price is a good
approximation of the cost of common stock.
True
False - True
Ke represents an expected return to stockholders as well as a cost to the firm.
True
False - True
Regardless of the particular source of funds utilized for a project, the required rate of return, or discount
rate, will be the weighted average cost of capital.
True
False - true
Taking on additional debt will reduce the cost of equity.
True
False - False
Market values rather than book values should be used for determining the optimal capital structure;
however, in practice, book value is commonly used.
True
False - True
The pretax cost of debt is generally less than the pretax cost of equity.
True
False - true
It is standard practice to evaluate investment decisions using the cost of the specific financing method
involved.
