When calculating a corporation's cost of capital, we need to account for the following factors compared...
When calculating a corporation's cost of capital, we need to account for the following factors compared to investors' required rate of return:
|
A. Individual taxes and dividends. |
|
| B. |
Corporate taxes and the earned income tax credit. |
| C. |
Corporate taxes and floatation costs. |
| D. |
Individual taxes and corporate taxes. |
Homework Answers
we need to account for Corporate taxes and floatation costs compared to investors' required rate of return
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When calculating a corporation's cost of capital, we need to
account for the following factors compared...
19. Holt Corp. is considering two mutually exclusive projects, Projects Santiago and Peralta Santiago Peralta NPV...
19. Holt Corp. is considering two mutually exclusive projects, Projects Santiago and Peralta Santiago Peralta NPV $250,000 $225,000 PI 1.20 IRR | 11.40% | 12.20% PB 3.4 years 3.8 years I 140 Assuming Holt Corp. wants to maximize shareholder wealth and can afford either project, which project should it invest in? a. Project Santiago b. Project Peralta Both projects Neither project d. 20. Two considerations that cause a corporation's cost of capital to be different than its investors required returns...
Which one of the following factors is not considered in calculating the firm’s cost of equity? risk free rate of retu...
Which one of the following factors is not considered in calculating the firm’s cost of equity? risk free rate of return beta interest rate on corporate debt expected return on equities difference between expected return on stocks and the risk free rate of return Which one of the following factors is not considered in calculating the firm’s cost of capital? cost of equity interest rate on debt the firm’s marginal tax rate book value of debt and equity the firm’s...
Which of the following statements is FALSE? A. A firm's cost of equity capital is directly...
Which of the following statements is FALSE? A. A firm's cost of equity capital is directly related to investors' required rate on the firm's stock. B. When using the dividend growth model to estimate required return, the sustainable growth rate may be used to approximate the growth rate in dividends. C. A firm's cost of debt may be estimated using the average coupon rate on the firm's bonds. D. The capital asset pricing model may be a preferred option for...
(Individual or component costs of capital) Compute the cost of the following: a. A bond that...
(Individual
or component costs of
capital)
Compute the cost of the following:
a. A bond that has $1,000 par value (face value) and a contract
or coupon interest rate of 8 percent. A new issue would have a
floatation cost of 8 percent of the $1,145 market value. The bonds
mature in 14 years. The firm's average tax rate is 30 percent and
its marginal tax rate is 34 percent.
b. A new common stock issue that paid a $1.40...
(Individual or component costs of capital) Compute the cost of the following: a. A bond that...
(Individual or component costs of capital) Compute the cost of the following: a. A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 7 percent. A new issue would have a floatation cost of 7 percent of the $1,135 market value. The bonds mature in 7 years. The firm's average tax rate is 30 percent and its marginal tax rate is 38 percent. b. A new common stock issue that paid a $1.50...
When calculating the after-tax weighted average cost of capital (WACC), which of the following components are...
When calculating the after-tax weighted average cost of capital (WACC), which of the following components are adjusted for taxes in the equation? The before-tax cost of preferred stock The before-tax cost of equity The before-tax cost of debt The after-tax cost of debt
Question 7 (Mandatory) (1 point) When firms use multiple sources of capital, they need to calculate...
Question 7 (Mandatory) (1 point) When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as: O a weighted average of the capital components costs. O they apply to each asset as they are purchased with their respective forms of debt or equity. O a sum of the capital components costs. O a simple average of the capital components costs. Question 8 (Mandatory) (1 point) Which of the following...
The weighted average cost of capital for a wholesaler: a. Is unaffected by changes in corporate...
The weighted average cost of capital for a wholesaler: a. Is unaffected by changes in corporate tax rates. b. Is the return investors require on the total assets of the firm. c. Remains constant when the debt-equity ratio changes. d. Should be used as the required return when analyzing a potential acquisition of a retail outlet. e. Is equivalent to the after tax cost of the firm's liabilities.
Question 13 (1 point) Which of the following statements is correct? A) When calculating the cost...
Question 13 (1 point) Which of the following statements is correct? A) When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. B) When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible for the corporation. OC) If a company's beta increases, this will increase the cost of equity, but never its WACC. D) Because of tax effects,...
(Individual or component costs of capital)Compute the cost of the following: a. A bond that has...
(Individual or component costs of capital)Compute the cost of the following: a. A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 6 percent. A new issue would have a floatation cost of 6 percent of the $1,140 market value. The bonds mature in 7 years. The firm's average tax rate is 30 percent and its marginal tax rate is 37 percent. b. A new common stock issue that paid a $1.50 dividend...
19. Holt Corp. is considering two mutually exclusive projects, Projects Santiago and Peralta Santiago Peralta NPV $250,000 $225,000 PI 1.20 IRR | 11.40% | 12.20% PB 3.4 years 3.8 years I 140 Assuming Holt Corp. wants to maximize shareholder wealth and can afford either project, which project should it invest in? a. Project Santiago b. Project Peralta Both projects Neither project d. 20. Two considerations that cause a corporation's cost of capital to be different than its investors required returns...
(Individual
or component costs of
capital)
Compute the cost of the following:
a. A bond that has $1,000 par value (face value) and a contract
or coupon interest rate of 8 percent. A new issue would have a
floatation cost of 8 percent of the $1,145 market value. The bonds
mature in 14 years. The firm's average tax rate is 30 percent and
its marginal tax rate is 34 percent.
b. A new common stock issue that paid a $1.40...
Question 7 (Mandatory) (1 point) When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as: O a weighted average of the capital components costs. O they apply to each asset as they are purchased with their respective forms of debt or equity. O a sum of the capital components costs. O a simple average of the capital components costs. Question 8 (Mandatory) (1 point) Which of the following...
Question 13 (1 point) Which of the following statements is correct? A) When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. B) When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible for the corporation. OC) If a company's beta increases, this will increase the cost of equity, but never its WACC. D) Because of tax effects,...
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