1
SDSU BA323 BRINCKS FINAL EXAM 2025 | ALL
QUESTIONS AND CORRECT ANSWERS | GRADED A+ |
NEWEST VERSION | VERIFIED ANSWERS
Why do we care about the weighted average cost of capital (WACC)? -
..(ANSWER)...WACC is necessary for making corporate investment decisions, such
as building a new factory. WACC gauges the risk of a project (Higher WACC means
more risk associated.) Two sides of an investment decision:
- How much money will this project make?
- How much does it cost for the firm to get the funds for this investment?
What are the 3 main sources of capital for the firm? - ..(ANSWER)...Debt,
preferred stock, and common equity are 3 main sources of capital
What are the 2 components of common equity? - ..(ANSWER)...Retained earnings
and new common stock are 2 components of common equity.
What are 2 components of debt? - ..(ANSWER)...Short term notes payable and
long-term debt are 2 components of debt.
Do we care about after-tax or pre-tax analysis? Why? - ..(ANSWER)...After-tax
capital cost since interest is tax deductible
, 2
What are the 3 methods of determining a company's target weights? -
..(ANSWER)...Accounting numbers (book value), Market value and optimal capital
structure determination are all methods used to determine target weights.
What are the 3 ways to determine the cost of common equity? -
..(ANSWER)...CAPM, DCF, and Bond-yield + risk premium
Why is there a cost for retained earnings? - ..(ANSWER)...If earnings are retained,
there is an opportunity cost (the return that stockholders could earn on
alternative investments of equal risk).
What factors influence a company's composite WACC? - ..(ANSWER)...Market
conditions.
The firm's capital structure and dividend policy.
The firm's investment policy. Firms with riskier projects generally have a higher
WACC.
Should companies use the composite WACC as the hurdle rate for each project?
Why not? - ..(ANSWER)...No, because projects typically have different riskiness.
What are flotation costs and why do they make retained earnings cheaper than
issuing new common stock? - ..(ANSWER)...Transaction costs associated with
SDSU BA323 BRINCKS FINAL EXAM 2025 | ALL
QUESTIONS AND CORRECT ANSWERS | GRADED A+ |
NEWEST VERSION | VERIFIED ANSWERS
Why do we care about the weighted average cost of capital (WACC)? -
..(ANSWER)...WACC is necessary for making corporate investment decisions, such
as building a new factory. WACC gauges the risk of a project (Higher WACC means
more risk associated.) Two sides of an investment decision:
- How much money will this project make?
- How much does it cost for the firm to get the funds for this investment?
What are the 3 main sources of capital for the firm? - ..(ANSWER)...Debt,
preferred stock, and common equity are 3 main sources of capital
What are the 2 components of common equity? - ..(ANSWER)...Retained earnings
and new common stock are 2 components of common equity.
What are 2 components of debt? - ..(ANSWER)...Short term notes payable and
long-term debt are 2 components of debt.
Do we care about after-tax or pre-tax analysis? Why? - ..(ANSWER)...After-tax
capital cost since interest is tax deductible
, 2
What are the 3 methods of determining a company's target weights? -
..(ANSWER)...Accounting numbers (book value), Market value and optimal capital
structure determination are all methods used to determine target weights.
What are the 3 ways to determine the cost of common equity? -
..(ANSWER)...CAPM, DCF, and Bond-yield + risk premium
Why is there a cost for retained earnings? - ..(ANSWER)...If earnings are retained,
there is an opportunity cost (the return that stockholders could earn on
alternative investments of equal risk).
What factors influence a company's composite WACC? - ..(ANSWER)...Market
conditions.
The firm's capital structure and dividend policy.
The firm's investment policy. Firms with riskier projects generally have a higher
WACC.
Should companies use the composite WACC as the hurdle rate for each project?
Why not? - ..(ANSWER)...No, because projects typically have different riskiness.
What are flotation costs and why do they make retained earnings cheaper than
issuing new common stock? - ..(ANSWER)...Transaction costs associated with
