1. Which of the following is NOT considered as a capital component for the purpose of calculating the weighted average cost of capital (WACC)?
long-term debt.
Accruals.
Common stock.
Preferred stock.
2. Which one of the following is a logical assumption concerning capital structure weights?
The weights are not constant over time.
A new bond issue will increase the weight of the firm's preferred stock.
The redemption of a bond issue will increase the weight of the firm's debt.
3. If D represents debt, E represents equity, and P represents preferred, then the capital structure weight of debt is computed as:
E/D
D/(D+E+P)
E/(D+E+P)
4. Suppose your company has an equity beta of 1.0 and the current risk-free rate is 6.0%. If the expected market risk premium is 8.6%, what is your cost of equity capital?
8.1%
9.6%
10.3%
14.6%.
5. A stock sells for $20 per share, its next dividend expected to pay (D1) is $1.00, and its growth rate is a constant 6%. What is its cost of common stock?
5.3%
11.0%
11.3%
11.6%
6. If a firm's before-tax cost of preferred stock is 10% and the firm has a 35% marginal tax rate, what is the firm's after-tax cost of preferred stock?
6.5%
3.5%
10.0%
None of above is correct.
E/ (E+P)