MCQ chapter 11- cost of capital

d) The cost of capital is sometimes referred to as the discount rate or the opportunity cost. What role does it play in the long-term investment decisions of any firm?

Under normal circumstances, the weighted average cost of capital is used as the firm's required rate of return because   a. as long as the firm's investments earn returns greater than the cost of capital, the value of the firm will increase   b. it is comparable to the average of all the interest rates on debt that currently prevail in the financial markets   c. returns below the cost of capital will cover all the fixed costs associated with capital and provide excess returns to the firm's stockholders

The cost of equity is ________.   a.equal to the amount of asset turnover b.the interest associated with debt c.the weighted average cost of capital d.the rate of return required by investors to incentivize them to invest in a company

c. Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.

The optimal capital structure: a. Maximizes the value of equity but not the tax shield associated with debtb. Minimizes the tax shield associated with debtc. Maximizes the value of the company but not necessarily the tax shield associated with debtd. Maximizes the value of the company and the tax shield associated with debt

Is the debt level that maximizes a firm's expected EPS the same as the one that maximizes its stock price?  Explain. Explain how a firm might shift its capital structure so as to change its weighted average cost of capital (WACC).  What would be the impact on the value of the firm?

1. Which of the following is not a component used in calculating the cost of capital? A. The cost of short-term debt. B. The cost of common stock. C. The cost of long-term debt. D. The cost of retained earnings.   2. Which of the following statements about cost of capital is false? A. The overall cost of capital is the minimum rate a firm must earn on all investments to cover capital costs. B. The overall cost of capital is the cost of the firm's equity capital at which the market value of the firm will remain unchanged. C. Cost of capital is based on what the company pays for its capital, not the return earned on the capital employed. D. The overall cost of capital is the weighted average cost of the various debt and equity components in a firm's capital structure.

The cost of capital can be thought of as the rate of return required by investors in the firm's securities. O a. false O b. true

The cost of equity is ________. Group of answer choices A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnover

Weighted Average Cost of Capital (WACC) theory suggests there is an optimal capital structure.   Discuss this statement to include an explanation of: What is meant by ‘capital structure’. How changes in capital structure effect WACC The relationship of WACC to the market value of a company The traditional view of the optimum gearing ratio.              You may find graphical illustration(s) can support your discussion.

For an unlevered​ firm, the cost of capital can be determined by using the​ ________.   A. Preferred stock yield   B. Yield to maturity on the traded debt   C. Capital Asset Pricing Model   D. Dividend yield

What is the effect of an increase in the cost of capital on the payback period, profitability index and accounting rate of return? Payback period will increase, Profitability will decrease, and Accounting rate of return will increase. Payback period will not change, Profitability will decrease, and Accounting rate of return will not change. Payback period will not change, Profitability will increase, and Accounting rate of return will decrease. Payback period will decrease, Profitability will increase, and Accounting rate of return will decrease.

Which one of the following is minimized when the value of the firm is maximized? A- WACC B- Return on equity C-Debt D-Taxes E- Bankruptcy costs

Which of the following does NOT directly affect a company's cost of equity? Select one: a. Return on assets b. Expected market return c. Risk-free rate of return d. The company's beta

The value of a firm is maximized when the:   Multiple Choice   tax rate equals the cost of capital.   weighted average cost of capital is minimized.   cost of equity is maximized.   levered cost of capital is maximized.   debt-equity ratio is minimized.

Which of the following statements is CORRECT? Select one: a. The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC). b. The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share. c. The capital structure that maximizes the stock price is also the capital structure that maximizes the firm’s times interest earned (TIE) ratio. d. Increasing a company’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company’s WACC. e. If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.