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FIN650-Module 6 � Static Online Exam 2

Exam covering financial concepts from Module 6 of FIN 650.

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FIN650-Module 6–Static Online Exam 2The cost of debt is equal to one minus the marginal tax rate multiplied by the average couponrate on all outstanding debt.a. Trueb. FalseThe cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% ofdividends received by a corporation may be excluded from the receiving corporation's taxableincome.a. Trueb. FalseThe cost of common stock is the rate of return the marginal stockholder requires on the firm'scommon stock.a. Trueb. FalseFor capital budgeting and cost of capital purposes, the firm should always consider retainedearnings as the first source of capital, i.e., use these funds first, because retained earnings haveno cost to the firm.a. Trueb. FalseThe cost of debt, rd, is normally less than rs, so rd(1-T) will normally be less than rs.Therefore, as long as the firm is not completely debt financed, the weighted average cost ofcapital (WACC) will normally be greater than rd(1-T).a.Trueb.b. FalseThe lower the firm's tax rate, the lower will be its after-tax cost of debt and WACC, other thingsheld constant.a. Trueb. FalseA firm should never undertake an investment if accepting the project would lead to an increasein the firm's cost of capital.a. Trueb. FalseBecause "present value" refers to the value of cash flows that occur at different points in time, aseries of present values should not be summed to determine the value of a capital budgetingproject.a. Trueb. FalseWhich of the following statements is CORRECT? Assume that the project being considered hasnormal cash flows, with one outflow followed by a series of inflows.A) A project’s NPV is found by compounding the cash inflows at the IRR to find the terminalvalue (TV), then discounting the TV at the WACC.B) The lower the WACC used to calculate it, the lower the calculated NPV will be.C) If a project’s NPV is less than zero, then its IRR must be less than the WACC.

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Document Details

University
Grand Canyon University
Course
FIN 650
Subject
Finance

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