The cost of debt in WACC calculation

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Reference no: EM132074382

1. If you open an IRA and invest $5,000 a year (at the end of the year), how much will be in the account after twenty-five years if the funds earn 5 percent annually?

a. $136,888

b. $238,635

c. $190,975

d. $143,181

e. $251,181

2. Which of the following should be used as the cost of debt in a WACC calculation?

The cost of debt that is marked to market or the cost of debt if the company were to issue debt today.

The historical cost of debt that is on the company's balance sheet.

The 30 day treasury bill rate plus a company's risk premium.

The 10 year treasury bond rate.

3. Rank the following from highest to lowest for the typical company.

rs, the cost of retained earnings WACC,

the Weighted Average Cost of Capital re,

the cost of a new equity issue rd(1-Tc),

the after tax cost of debt

4. Ten years ago, Lucas Inc. earned $0.75 per share. Its earnings this year were $6.20. What was the growth rate in earnings per share (EPS) over the 10-year period?

a. 21.76% b. 26.91% c. 23.52% d. 28.63% e. 29.78%

Reference no: EM132074382

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