chapter 14
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| WACC is used to discount Blank______. | show 🗑
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| The return an investor in a security receives is equal to the cost of the security to the company that issued it. True false question. True | show 🗑
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| show | supply
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| The cost of capital depends primarily on the (use/source) of funds. | show 🗑
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| show | debt
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| What does WACC stand for? | show 🗑
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| Finding a firm's overall cost of equity is difficult because _____. | show 🗑
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| The return an investor in a security receives is ______ the cost of the security to the company that issued it. | show 🗑
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| In addition to CAPM, the cost of equity can be determined using the dividend growth model and the _____ approach. | show 🗑
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| show | required by investors
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| To apply the dividend growth model to a particular stock, you need to assume that the firm's ___ will grow at a constant rate. | show 🗑
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| show | use; source
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| The growth rate of dividends can be found using _____. | show 🗑
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| Which of the following are components used in the construction of the WACC? | show 🗑
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| The underlying key assumption, and oftentimes a key disadvantage, of the dividend growth model is that it assumes the dividend _____. | show 🗑
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| Finding a firm's overall cost of equity is (straightforward/difficult). | show 🗑
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| The cost of can be observed because it is the interest rate the firm must pay on new loans. | show 🗑
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| One method for estimating the cost of equity is based on the ______ model. | show 🗑
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| show | pays a constant dividend
pays dividends in perpetuity
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| show | RE = D1/P0 + g
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| Select all that apply To estimate the growth rate of a particular stock, we can ___. | show 🗑
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| The most appropriate weights to use in the WACC are the ______ weights. | show 🗑
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| Which of the following methods for calculating the cost of equity ignores risk? | show 🗑
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| Which of the following is true? | show 🗑
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| Select all that apply A firm's cost of debt can be ___. | show 🗑
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| show | Coupon interest paid on bonds
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| show | Dividends to common stockholders are not fixed.
Dividends to preferred stockholders are fixed.
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| show | aftertax cost of debt
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| show | dividend
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| MNO preferred stock pays a dividend of $2 per year and has a price of $20. If MNO's tax rate is 21 percent, the required rate of return on its preferred stock is found by which formula? | show 🗑
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| Capital weights can be interpreted just like portfolio weights. | show 🗑
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| show | similar to
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| show | Under U.S. tax law, a corporation's interest payments are deductible for tax purposes.
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| Dividends paid to common stockholders ______ be deducted from the payer's taxable income for tax purposes. | show 🗑
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| show | risk class
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| show | [S/(S + B)] × RS + [B/(S + B)] × RB × (1 − Tc)
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| show | (P/V) × RP
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| show | True
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| show | Ideally, we should use market values in the WACC.
Book values are often similar to market values for debt.
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| The issuance costs of bonds and stocks are referred to as ______ costs. | show 🗑
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| Which is true of flotation costs in calculating WACC? | show 🗑
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| WACC was used to compute the following project NPVs: Project A = $100, Project B = -$50, Project C = -$10, Project D = $40. Which projects should the firm accept? | show 🗑
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| The most well-known approach to company performance evaluation is the _____ method. | show 🗑
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| In reality, most firms cover the equity portion of their capital spending with ___. | show 🗑
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| show | bring new security issues to the market
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| show | add them to the initial investment
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| show |
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Created by:
agordon93