Cost of Capital Paper 1

1

A major use of warrants in financing is to






2

Maloney, Inc.’s 1,000 par value preferred stock paid its 100 per share annual dividend on April 4 of the current year. The preferred stock’s current market price is 960 a share on the date of the dividend distribution. Maloney’s marginal tax rate (combined federal and state) is 40%, and the firm plans to maintain its current capital structure relationship. The component cost of preferred stock to Maloney would be closest to






3

The theory underlying the cost of capital is primarily concerned with the cost of






4

Osgood Products has announced that it plans to finance future investments so that the firm will achieve an optimum capital structure. Which one of the following corporate objectives is consistent with this announcement?






5

When calculating the cost of capital, the cost assigned to retained earnings should be






6

Global Company Press has $150 par value preferred stock with a market price of $120 a share. The organization pays a 15 per share annual dividend. Global’s current marginal tax rate is 40%. Looking to the future, the company anticipates maintaining its current capital structure. What is the component cost of preferred stock to Global?






7

What is the after-tax cost of preferred stock that sells for $5 per share and offers a $0.75 dividend when the tax rate is 35%?






8

What is the weighted average cost of capital for a firm with equal amounts of debt and equity financing, a 15% before-tax company cost of equity capital, a 35% tax rate, and a 12% coupon rate on its debt that is selling at par value?






9

If k is the cost of debt and t is the marginal tax rate, the after-tax cost of debt, ki, is best represented by the formula






10

A firm’s target or optimal capital structure is consistent with which one of the following?






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