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.
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The value of a firm is maximized when the:
-
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.
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- If a company has over capitalization, rate of earning is: Select one: a. equal with the rate of earning if it has optimal level of capitalization b. lower than the rate of earning if it has optimal level of capitalization c. higher than the rate of earning if it has optimal level of capitalizationWeighted 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.A firm's overall cost of capital is Select one :. A. Best measured by the cost of capital of the riskiest projects that the firm is working on B. a weighted average of the costs of capital for the collection of individual projects that the firm is working on C. equal to its cost debt d. None of these
- Explain what the weighted average cost of capital for a firm is and why is it often used as a discount rate to evaluate capital projects.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 costsExplain the relationship between the weighted average cost of capital (WACC), the maximization of firm value, and financial decision making.
- Explain why the required rate of return on a firm's assets must be equal to the weighted average cost of capital associated with its liabilities and equity. Explain using the concepts from the course.The optimal capital structure has been achieved when the: Multiple Choice cost of equity is maximized given a pretax cost of debt. debt-equity ratio results in the lowest possible weighted average cost of capital. debt-equity ratio is such that the cost of debt exceeds the cost of equity. weight of equity is equal to the weight of debt. debt-equity ratio is equal to 1.Which of the following statements is most accurate? A. Financial leverage is directly related to operating leverage. B. Increasing the corporate tax rate will not affect capital structure decisions. C. A firm with low operating leverage has a small proportion of its total costs in fixed costs. D. Total costs can be calculated as net income minus total revenue.
- The relationship between WACC and investors' required rates of return The required rate of return of an investor is the rate of return that an investor demands to purchase a firm’s stocks or bonds and thus provide funds for capital investment. Therefore, required returns from the investors’ point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm’s point of view. Indicate in the following table whether each of the statements about WACC and the required rates of return of investors is true or false. Statement True False Flotation costs increase the cost of newly issued stock compared to the cost of the firm’s existing, or already outstanding, common stock or retained earnings. The firm’s cost of debt is what an investor is willing to pay for the firm’s stock before considering flotation costs. The amount that an investor is willing to pay for a firm’s bonds is inversely related to the…MNC's and domestic companies both try to optimize their weighted cost of capital. Group of answer choices True FalseCreate a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position.