LSUS- FIN701 Final Exam Questions & Answers 2023/2024

LSUS- FIN701 Final Exam Questions & Answers 2023/2024 A company's current cost of capital is based on: - ANSWER-both the returns currently required by its debtholders and stockholders All else constant, which one of the following will increase a company's cost of equity if the company computes that cost using the security market line approach? Assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2. - ANSWER-A reduction in the risk-free rate. Assume Russo's has a debt-equity ratio of .4 and uses the capital asset pricing model (CAPM) to determine its cost of equity. As a result, the company's cost of equity: - ANSWER-is dependent upon a reliable estimate of the market risk premium. A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith Inc. What is the return that these individuals require on this investment called? - ANSWER-Cost of Equity Textile Mills borrows money at a rate of 8.7 percent. This interest rate is referred to as the: - ANSWER-cost of debt. Which one of these will increase a company's aftertax cost of debt? - ANSWER-A decrease in the company's tax rate. The cost of preferred stock is computed the same as the: - ANSWER-rate of return on a perpetuity. A company's weighted average cost of capital: - ANSWER-is the return investors require on the total assets of the firm The average of a company's cost of equity, cost of preferred, and aftertax cost of debt that is weighted based on the company's capital structure is called the: - ANSWER-weighted average cost of capital