SDSU BA323 BRINCKS FINAL EXAM 2025 | ALL QUESTIONS AND
SDSU BA323 Brincks Final
CORRECT ANSWERS | GRADED A+ | NEWEST VERSION | VERIFIED
Study online at https://quizlet.com/_h3wcny
ANSWERS
1. Why do we care about the WACC is necessary for making corporate investment deci-
weighted average cost of capital sions, such as building a new factory. WACC gauges the risk
(WACC)? 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?
2. What are the 3 main sources of Debt, preferred stock, and common equity are 3 main
capital for the firm? sources of capital
3. What are the 2 components of Retained earnings and new common stock are 2 compo-
common equity? nents of common equity.
4. What are 2 components of debt? Short term notes payable and long-term debt are 2 com-
ponents of debt.
5. Do we care about after-tax or After-tax capital cost since interest is tax deductible
pre-tax analysis? Why?
6. What are the 3 methods of de- Accounting numbers (book value), Market value and opti-
termining a company's target mal capital structure determination are all methods used to
weights? determine target weights.
7. What are the 3 ways to determine CAPM, DCF, and Bond-yield + risk premium
the cost of common equity?
8. Why is there a cost for retained If earnings are retained, there is an opportunity cost (the
earnings? return that stockholders could earn on alternative invest-
ments of equal risk).
9.
, SDSU BA323 Brincks Final
Study online at https://quizlet.com/_h3wcny
What factors influence a compa- Market conditions.
ny's composite WACC?
The firm's capital structure and dividend policy.
The firm's investment policy. Firms with riskier projects
generally have a higher WACC.
10. Should companies use the com- No, because projects typically have different riskiness.
posite WACC as the hurdle rate
for each project? Why not?
11. What are flotation costs and why Transaction costs associated with issuing new securities.
do they make retained earnings Issuing new common stocks may send a negative signal to
cheaper than issuing new com- the capital markets, which may depress the stock price.
mon stock?
12. How do changes in stock or debt Stock is expensive and debt is cheap. Since stock is more
change capital structure? risky than debt, it cost more to issue stock than debt.
13. If you increase the percentage WACC goes up
of stock, __________. If you de-
crease the percentage of debt,
___________.
14. If you decrease the percentage WACC goes down.
of stock, _____________. If you in-
crease the percentage of debt,
___________.
15. Which method used to calculate Market value since it has the highest equity.
WACC would yield the highest
value?
16. Book value
SDSU BA323 Brincks Final
CORRECT ANSWERS | GRADED A+ | NEWEST VERSION | VERIFIED
Study online at https://quizlet.com/_h3wcny
ANSWERS
1. Why do we care about the WACC is necessary for making corporate investment deci-
weighted average cost of capital sions, such as building a new factory. WACC gauges the risk
(WACC)? 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?
2. What are the 3 main sources of Debt, preferred stock, and common equity are 3 main
capital for the firm? sources of capital
3. What are the 2 components of Retained earnings and new common stock are 2 compo-
common equity? nents of common equity.
4. What are 2 components of debt? Short term notes payable and long-term debt are 2 com-
ponents of debt.
5. Do we care about after-tax or After-tax capital cost since interest is tax deductible
pre-tax analysis? Why?
6. What are the 3 methods of de- Accounting numbers (book value), Market value and opti-
termining a company's target mal capital structure determination are all methods used to
weights? determine target weights.
7. What are the 3 ways to determine CAPM, DCF, and Bond-yield + risk premium
the cost of common equity?
8. Why is there a cost for retained If earnings are retained, there is an opportunity cost (the
earnings? return that stockholders could earn on alternative invest-
ments of equal risk).
9.
, SDSU BA323 Brincks Final
Study online at https://quizlet.com/_h3wcny
What factors influence a compa- Market conditions.
ny's composite WACC?
The firm's capital structure and dividend policy.
The firm's investment policy. Firms with riskier projects
generally have a higher WACC.
10. Should companies use the com- No, because projects typically have different riskiness.
posite WACC as the hurdle rate
for each project? Why not?
11. What are flotation costs and why Transaction costs associated with issuing new securities.
do they make retained earnings Issuing new common stocks may send a negative signal to
cheaper than issuing new com- the capital markets, which may depress the stock price.
mon stock?
12. How do changes in stock or debt Stock is expensive and debt is cheap. Since stock is more
change capital structure? risky than debt, it cost more to issue stock than debt.
13. If you increase the percentage WACC goes up
of stock, __________. If you de-
crease the percentage of debt,
___________.
14. If you decrease the percentage WACC goes down.
of stock, _____________. If you in-
crease the percentage of debt,
___________.
15. Which method used to calculate Market value since it has the highest equity.
WACC would yield the highest
value?
16. Book value
