Weights used in calculating the wacc

Assignment Help Financial Management
Reference no: EM13666999

1. Weights used in calculating the WACC should:
sum to 1.00.
always include Wd.
be based on the book value of each source of financing.
be calculated according to the price of each security-so if the price of a bond is $1,000, and the price of common stock is $50, then the weight of debt would be .20.

Question 2. 2. One reason why we are not concerned with idiosyncratic risk (also called firm-specific risk) is that:
most risk is not firm-specific, so we can ignore it.
through hedging and insurance, investors may now invest in stocks with almost no risk exposure of any kind.
it is easy and almost costless to diversify one's portfolio and eliminate idiosyncratic risk.
investing in bonds can offset the idiosyncratic risks of shares of stock.

Question 3. 3. The weighted average cost of capital is:
the average return for the company's stock over the past several years.
the average cost, including commissions, for raising capital for the firm.
an average required return for each of the sources of capital used by the firm to finance its projects, weighted by the amount contributed by each source.
interest payments and dividends, divided by the price of bonds and stock, respectively.


Question 4. 4. Which of the following statements regarding the cost of debt is true?
The cost of debt for bonds equals the coupon rate of outstanding bonds.
The cost of debt for bonds is found by dividing the price by the annual coupon.
The cost of debt for bonds is found by calculating their yield to maturity.
The cost of debt equals the flotation costs charged by investment bankers who advise the firm.


Question 5. 5. We assume investors are risk averse, and therefore they:
are equally concerned with upside potential and downside risk.
expect a higher return for bearing more risk.
will pay more for an investment with higher risk.
have very high required rates of return.

Question 6. 6. Beta is estimated as the slope of a regression line fit to pairs of periodic returns, (rx, ry), where:
rx is the return for a market index such as the S&P 500 Index.
rx is the return for the stock being analyzed-for example, IBM's return if we are estimating IBM's beta.
the slope measures the average return for the market portfolio for each percentage change in the value of the security of interest.
ry is the return for the market index such as the S&P 500 Index.

Question 7. 7. Which of the following statements regarding the cost of preferred stock is true?
It is typically found by solving for an annuity's discount rate.
It is typically found by solving for an annuity due's discount rate.
It is found similarly to a perpetuity's discount rate but with irregular spacing of the dividends.
It is typically found by solving for a perpetuity's discount rate.


Question 8. 8. Investors will make an investment if:
the historical rate of return exceeds the expected rate of return.
the required rate of return exceeds the expected rate of return.
the expected rate of return exceeds the actual rate of return.
the expected rate of return exceeds the required rate of return.


Question 9. 9. In order to find the cost of equity using the firm's cost of debt, the rule of thumb is to:
multiply Kd by one plus the tax rate.
multiply Kd by one minus the tax rate.
add 3% to 6% to Kd.
multiply Kd by the firm's beta.

Question 10. 10. If a firm just paid a dividend equal to $4.00 a share, then for the WACC, in order to find the cost of equity, $4 should be:
divided by the current price of the stock, and the quotient should be added to the dividend growth rate.
divided by the current price of the stock.
multiplied by one minus the tax rate, and the difference divided by the current price of the stock.
multiplied by the sum of one plus the growth rate, and then divided by the current price of the stock; this quotient should be added to the dividend growth rate.

Reference no: EM13666999

Previous Q& A

  Use at least two capital budgeting methods

TCO F) Company A has the opportunity to do any, none, or all of the projects for which the net cash flows per year are shown below. Projects A and B can be done together. Projects B and C can be done together. But Projects A and C are mutually ..

  What are the ethical issues

What are the ethical issues?

  Fairly compensated for the risk of the firm

The risk free rate is 7%, the return in the market is 10%, and the beta is 1.30. What return must you receive to be satisfied that you are being fairly compensated for the risk of the firm?

  A rational investor be indifferent between the banks

Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? Explain.

  An investor requires a return of risky security

An investor requires a return of 12 percent of risky securities

  A closed system consists of four objects

A closed system consists of 4 objects. Initially, object A has a charge of -200 C, object B has a charge of 134 C, object C has a charge of-54 C, and object D has a charge of146 C. After 219s have passed, object A has a -108 C charge, object B has a ..

  Risk and return

Risk and Return

  A scandinavian wind turbine manufacturer

2. A Scandinavian wind turbine manufacturer is attempting to understand the profit impact of a price change on turbines. Currently a 1.5 megawatt wind turbine has a total price of $1.7million to an electric generator but faces only 1.3 million..

  Why must we use a humidifier and dehumidifier

Discuss the humidity in an air conditioned room and in a heated room in the winter. Why must we use a humidifier and dehumidifier? If the outside temperature is 41o F and room temperature is 68o F should we utilize dehumidifier why or why not?

  Base of the cliff what is the height of the cliff

A projectile is launched at 15m/s at an angle of 30 degrees above the horizontal from the edge of a cliff. If the projectile lands 10m horizontally from the base of the cliff what is the height of the cliff?

Reviews

Write a Review

 

Similar Q& A

  What is a business plan

Explain how the idea of a brewing device for a small apartment became a startup enterprise. What did you learn from that bit of entrepreneurial history

  Discuss the motivatorsrewards that encourage individuals to

entrepreneurial motivation and rewards-dq1discuss the motivatorsrewards that encourage individuals to begin

  Youre required to develop a case study for company or

you are required to develop a case study for a company or product of your choice evaluating the supply chain. in the

  Suppose that a manufacturer is going to produce a part

suppose that a manufacturer is going to produce a part which is a component of a number of his assembled products. the

  All rates should be calculated to 3 decimal places in eg

all rates should be calculated to 3 decimal places in e.g. 1.234 the discount factors to 5 decimal places e.g. 0.98765

  The discussion board db is part of the core of online

the discussion board db is part of the core of online learning. classroom discussion in an online environment requires

  Market for exchange rates

Based on the volatility smile usually observed in the market for exchange rates, which of these estimates would you expect to be too low and which would you expect to be too high?

  Homework adams food service has issued 7 38 bonds that

ltbrgtadams food service has issued 7 38 bonds that mature on july 15th 2042. the bonds are callable 1037.08 on july

  How does a current account deficit benefit u.s. citizens

What is a current account deficit? Specifically, what does it mean that the U.S. isrunning a current account deficit? How does a current account deficit benefit U.S. citizens? Howdoes a current account deficit hurt U.S. citizens?

  The firm manufactures a global positioning system gps that

the firm manufactures a global positioning system gps that sells for 2000 with cost of goods sold hardware 30 and

  Explain personal automobile policy

David runs a stop sign and causes a serious auto accident, badly injuring two people. The injured parties win lawsuits against him for $30,000 each.

  Managerial planning process for the company

Determine whose rate of return (i.e., local or parent currency returns) the company you researched should use when evaluating foreign direct investment opportunities and justify the position.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd