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FIN 6100 Exam 2 Questions & Answers Latest Update 100% Solved

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FIN 6100 Exam 2 Questions & Answers Latest Update 100% Solved

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FIN 6100 Exam 2 Questions & Answers Latest Update 100% Solved


FIN 6100 Exam 2 Questions & Answers Latest
Update 100% Solved


Correct

Incorrect




What is the cost of capital? - ✔-the overall interest rate that companies pay to finance operations and
the purchase of assets.



What happens if a company is earning more than their WACC rate?



Less than? - ✔-more: they are increasing the value of its equity



less: losing value for shareholders



WACC formula?



What do the different parts stand for? - ✔-WACC = WdKd(1-T) + WeKe



Wd: weight of debt

Kd: cost of debt (interest rate)

T: Tax shield (cost of debt after interest)

We: weight of equity

Ke: return on equity



What does the cost of debt mean? - ✔-the interest rate we would expect to pay on borrowed funds

FIN 6100 Exam 2 Questions & Answers Latest Update 100% Solved

, FIN 6100 Exam 2 Questions & Answers Latest Update 100% Solved




(Kd)



What is the best way to measure cost of debt? - ✔-Bonds



Terms to know



Maturity/term

Remaining term

Face Value

Coupon Payment - ✔-maturity/term: total life of the bond from origination to termination



remaining term: how much time until maturity



face value: amount of money returned when the bond matures



Coupon Payment: amount paid periodically to buyer.



coupon payment formula - ✔-payment = face value (FV) x coupon rate



Where are the terms of a bond set?



what does it include? (4) - ✔-in the Indenture contract



1. coupon rate and frequency

2. options attached

3. maturity

4. face value


FIN 6100 Exam 2 Questions & Answers Latest Update 100% Solved

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