FIN 300 Exam 3 Colorado State
University questions with verified
answers
WACC - correct answer ✔✔- represents the after-tax cost of capital
-represents the marginal cost of capital
- the cost of RE is less expensive than cost of issuing new common stock, due to flotation costs
- average cost to finance assets
- compensation demanded by the investor in a firm after taxes and transaction costs of the firm
are considered.
Reduce WACC - correct answer ✔✔-a reduction in market risk premium
- reduce financing
Increase WACC - correct answer ✔✔- increase in flationion associated with new and preferred
stock
-increase in Beta
-increase in expected inflation
-
Price and Yield - correct answer ✔✔Price goes up, yield goes down.
price goes down, yield goes up
When would a company call is callable bonds - correct answer ✔✔reduction in market interest
rates
, sinkable funds provision - correct answer ✔✔-determinate of bonds if market interest rates
decline
-
capital - correct answer ✔✔funds that the firm uses. All capital being raised has a cost. Raise
capital from creditors and owners.
relationship capital and expected returns - correct answer ✔✔expected returns must be greater
than capital.
k - correct answer ✔✔represents the required return for a certain source of capital
Kd - correct answer ✔✔-cost of debt (bonds/ the interest rate on the bonds)
-during credit crisis if companies had to pay higher IR, increase Kd.
- ATax lowers the the firms true cost of debt because borrowing money is cost deductible. After
Tax cost of debt= required rate of return for people borrowing the bonds (or cost of debt for the
company)
Kp - correct answer ✔✔-Cost of preferred- the required rate of return an investor required on
new preferred stock plus to cost of issuing.
-Kp = Dp/(Pp-F)
-also equals the minimum return a firm must earn to pay back stock holders. If not earned SH
will sell stock, causing price to fall.
- NOT tax deductible
- Kp is > than Kd, because they demand a high rr. since they are not guaranteed funds.
Ks - correct answer ✔✔Cost of equity provided by common stock holders for internal equity.
Existing common stock holders.
- more difficult to calculate than Kp because not constant.
University questions with verified
answers
WACC - correct answer ✔✔- represents the after-tax cost of capital
-represents the marginal cost of capital
- the cost of RE is less expensive than cost of issuing new common stock, due to flotation costs
- average cost to finance assets
- compensation demanded by the investor in a firm after taxes and transaction costs of the firm
are considered.
Reduce WACC - correct answer ✔✔-a reduction in market risk premium
- reduce financing
Increase WACC - correct answer ✔✔- increase in flationion associated with new and preferred
stock
-increase in Beta
-increase in expected inflation
-
Price and Yield - correct answer ✔✔Price goes up, yield goes down.
price goes down, yield goes up
When would a company call is callable bonds - correct answer ✔✔reduction in market interest
rates
, sinkable funds provision - correct answer ✔✔-determinate of bonds if market interest rates
decline
-
capital - correct answer ✔✔funds that the firm uses. All capital being raised has a cost. Raise
capital from creditors and owners.
relationship capital and expected returns - correct answer ✔✔expected returns must be greater
than capital.
k - correct answer ✔✔represents the required return for a certain source of capital
Kd - correct answer ✔✔-cost of debt (bonds/ the interest rate on the bonds)
-during credit crisis if companies had to pay higher IR, increase Kd.
- ATax lowers the the firms true cost of debt because borrowing money is cost deductible. After
Tax cost of debt= required rate of return for people borrowing the bonds (or cost of debt for the
company)
Kp - correct answer ✔✔-Cost of preferred- the required rate of return an investor required on
new preferred stock plus to cost of issuing.
-Kp = Dp/(Pp-F)
-also equals the minimum return a firm must earn to pay back stock holders. If not earned SH
will sell stock, causing price to fall.
- NOT tax deductible
- Kp is > than Kd, because they demand a high rr. since they are not guaranteed funds.
Ks - correct answer ✔✔Cost of equity provided by common stock holders for internal equity.
Existing common stock holders.
- more difficult to calculate than Kp because not constant.
