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5 Written Questions

5 Matching Questions

  1. capital component
  2. flotation cost adjustment
  3. cost of new common stock
  4. wacc
  5. cost of external equity
  1. a WdRd(1-T) + WpRp + WcRs
  2. b re = D1/[P(1-F)] + g
  3. c one of the types of capital used by firms to raise funds. They are investor-supplied items including debt, preferred stock, and common equity
  4. d the amount that must be added to rs to account for flotation costs to find re
  5. e rs + (flotation adjustment)

5 Multiple Choice Questions

  1. after-tax component cost of debt
  2. the mix of debt, preferred stock and common equity the firm plans to raise to fund its future projects
  3. the percentage cost of issuing new common stock. F
  4. Component cost of common equity raised by retained earnings or internal equity.

    Required rate of return on a firm's common stock
  5. a weighted average of the component costs of debt, preferred stock, and common equity

5 True/False Questions

  1. market value of equity? = rRF + RP

          

  2. cost of retained earnings? = D1/P0 + g

          

  3. flotation adjustmentthe amount that must be added to rs to account for flotation costs to find re

          

  4. before-tax cost of debtthe interest rate the firm must pay on new debt

          

  5. cost of new common stockthe rate of return investors require on the firm's preferred stock. Rp is calculated as the preferred dividend, Dp, divided by the current price, Pp

          

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