Part A
Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC)?
A. Common equity
B. Accruals
C. bonds
D. Preferred stock.
Part B
2. The cost of a particular source of capital (debt, preferred stock, common stock) is equal to the investor's required rate of return.
True
False
Part C
Which one of the following is a logical assumption concerning capital structure weights?
A. The weights are constant over time.
B. A new bond issue will increase the weight of the firm’s preferred stock.
C. The redemption of a bond issue will decrease the weight of the firm’s debt.
D. The issuance of additional shares of common stock will not change the weight of the preferred stock.
Part D
A stock sells for $20 per share, its last dividend (D1) was $1.00, and its growth rate is a constant 6%. What is its cost of common stock?
A. 5.3%
B. 11.0%
C. 11.3%
D. 11.6%
Part E.
A preferred stock is valued as a:
A. constant growth stock.
B. fixed coupon rate bond.
C. zero coupon stock.
D. perpetuity.