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WACC is used to discount Blank______.
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The return an investor in a security receives is equal to the cost of the security to the company that issued it.

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finance

chapter 14

QuestionAnswer
WACC is used to discount Blank______. Cash Flow
The return an investor in a security receives is equal to the cost of the security to the company that issued it. True false question. True true
The cost of capital is an appropriate name since a project must earn enough to pay those who ______ the capital. supply
The cost of capital depends primarily on the (use/source) of funds. use
A firm's overall cost of capital will include both its cost of capital and equity capital. debt
What does WACC stand for? Weighted average cost of capital
Finding a firm's overall cost of equity is difficult because _____. there is no way of directly observing the return that the firm's equity investors require on their investment
The return an investor in a security receives is ______ the cost of the security to the company that issued it. equal to
In addition to CAPM, the cost of equity can be determined using the dividend growth model and the _____ approach. SML
A project should only be accepted if its return is above what is ___. required by investors
To apply the dividend growth model to a particular stock, you need to assume that the firm's ___ will grow at a constant rate. dividend
The cost of capital depends on the _____ of funds, not the _____ of funds. use; source
The growth rate of dividends can be found using _____. security analysts' forecasts historical dividend growth rates
Which of the following are components used in the construction of the WACC? Cost of common stock Cost of debt Cost of preferred stock
The underlying key assumption, and oftentimes a key disadvantage, of the dividend growth model is that it assumes the dividend _____. grows at a constant rate
Finding a firm's overall cost of equity is (straightforward/difficult). difficult
The cost of can be observed because it is the interest rate the firm must pay on new loans. debt
One method for estimating the cost of equity is based on the ______ model. dividend growth
Preferred stock __ pays a constant dividend pays dividends in perpetuity
The formula for calculating the cost of equity capital that is based on the dividend discount model is: RE = D1/P0 + g
Select all that apply To estimate the growth rate of a particular stock, we can ___. use the historical dividend growth rate. use security analysts' forecasts
The most appropriate weights to use in the WACC are the ______ weights. market value
Which of the following methods for calculating the cost of equity ignores risk? The dividend growth model
Which of the following is true? A company can deduct interest paid on debt when computing taxable income.
Select all that apply A firm's cost of debt can be ___. obtained by checking yields on publicly traded bonds estimated easier than its cost of equity obtained by talking to investment bankers
Which of the following are tax-deductible to the firm? Coupon interest paid on bonds
Select all that apply What can we say about the dividends paid to common and preferred stockholders? Dividends to common stockholders are not fixed. Dividends to preferred stockholders are fixed.
The WACC is the weighted average of the cost of equity and the _____. aftertax cost of debt
To apply the dividend growth model to a particular stock, you need to assume that the firm's ___ will grow at a constant rate. dividend
MNO preferred stock pays a dividend of $2 per year and has a price of $20. If MNO's tax rate is 21 percent, the required rate of return on its preferred stock is found by which formula? $2/$20
Capital weights can be interpreted just like portfolio weights. structure
The market value cost of debt is often Blank______ the book value cost of debt. similar to
Which one of the following is true? Under U.S. tax law, a corporation's interest payments are deductible for tax purposes.
Dividends paid to common stockholders ______ be deducted from the payer's taxable income for tax purposes. cannot
Projects that have the same risk are said to be in the same _____. risk class
B = the market value of a firm's debt S = the market value of that same firm's equity RB = the before-tax yield on the firm's debt TC = the corporate tax rate RS = the cost of equity Given the definitions above, the weighted average cost of capital f [S/(S + B)] × RS + [B/(S + B)] × RB × (1 − Tc)
Including preferred stock in the WACC adds the term: (P/V) × RP
Economic value added (EVA) is a means of evaluating corporate performance. True
Which of the following are true? Ideally, we should use market values in the WACC. Book values are often similar to market values for debt.
The issuance costs of bonds and stocks are referred to as ______ costs. flotation
Which is true of flotation costs in calculating WACC? They are relevant cash flows.
WACC was used to compute the following project NPVs: Project A = $100, Project B = -$50, Project C = -$10, Project D = $40. Which projects should the firm accept? A and D
The most well-known approach to company performance evaluation is the _____ method. economic value added
In reality, most firms cover the equity portion of their capital spending with ___. internally generated cash flow
Flotation costs are costs incurred to ____. bring new security issues to the market
The best way to include flotation costs is to ___. add them to the initial investment
An important advantage to a firm raising equity internally is not having to pay ___.
Created by: agordon93
 

 



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