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5 Written questions

5 Matching questions

  1. cost of external equity
  2. required rate of return
  3. re
  4. capm equation
  5. rd(1-T)
  1. a after-tax component cost of debt
  2. b rs + (flotation adjustment)
  3. c ? = rRF + RP
  4. d component cost of external equity. Equal to rs plus a factor that reflects the cost of issuing new stock
  5. e rs = rRF + (RPm)b

5 Multiple choice questions

  1. the percentage cost of issuing new common stock. F
  2. Component cost of common equity raised by retained earnings or internal equity.

    Required rate of return on a firm's common stock
  3. interest rate on the firm's new debt. before-tax component cost of debt
  4. target weights of debt, preferred stock, and common equity. The weights are percentages of the different types of capital the firm plans to use when it raises capital in the future
  5. the number of shares of stock outstanding multiplied by the current stock price

5 True/False questions

  1. component costthe percentage cost of issuing new common stock. F


  2. cost of retained earningsthe rate of return required by stockholders on a firm's common stock. Rs


  3. cost of new common stockThe cost of external equity; based on the cost of retained earnings, but increased for flotation costs. Re


  4. flotation cost adjustment(adjusted DCF cost) - (pure DCF cost)


  5. retained earnings breakpoint(addition to retained earnings for the year) / (equity fraction)