FIN 6100 EXAM 2 QUESTIONS WITH 100% CORRECT ANSWERS | LATEST VERSION 2025/2026.

FIN 6100 EXAM 2 QUESTIONS WITH
100% CORRECT ANSWERS | LATEST
VERSION 2025/2026.




What is the cost of capital? - ANS 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? - ANS more: they are increasing the value of its equity


less: losing value for shareholders


WACC formula?


What do the different parts stand for? - ANS 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



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


(Kd)


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


Terms to know


Maturity/term
Remaining term
Face Value

Coupon Payment - ANS 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 - ANS payment = face value (FV) x coupon rate


Where are the terms of a bond set?


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


1. coupon rate and frequency
2. options attached


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