Exam 18: Capital Structure and the Cost of Capital

The weighted average cost of capital represents the minimum required rate of return on a capital-budgeting project and is found by multiplying the cost of each capital structure component by its appropriate weight and summing the terms.

All of the following statements are correct except:

The firm's capital structure is the mix of debt and equity used to finance its assets.

In calculating the cost of new common stock using the constant dividend growth model,it is important that the __________ are subtracted from the price of the stock.

The ratio of debt to stock market equity has generally been lowest for the largest of U.S.firms.

All of the following statements are correct except:

Which of the following affects a firm's choice of capital structures?

A non-optimal capital structure may lead to higher financing costs.

Other factors being constant,higher fixed financial costs mean:

The internal growth rate measures how quickly a firm can grow when it uses both internal equity and debt financing to keep its capital structure constant over time.

There is no opportunity cost associated with retained earnings.

Firm value is calculated by adding expected cash flow to the firm's cost of capital under each capital structure.

All of the following methods can be used to estimate the cost of debt except:

The required return,the cost of capital,and the discount rate are actually three distinctively different concepts.

All of the following components are needed to calculate the sustainable growth rate except:

All of the following statements are correct except:

All of the following statements are correct except:

The minimum required rate of return is a weighted average of the firm's cost of various sources of capital.

EBIT/EPS analysis shows the ranges of EBIT where a firm may prefer one capital structure over another.

A decrease in contractual managers' salaries will result in: