Homework Answers
Solution :- (4)
The Correct answer is (C) that is The same as
The after tax cost of equity is the same as the pretax cost of equity
Cost of Equity = ( D1 / Po ) + g
there is no tax effect while calculating cost of equity so we can say Pre tax cost of equity is same as Post tax cost of equity
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the pretax cost of equity. 4. The after-tax cost of equity is A) higher than B)...
true and false . The cost of equity is expected to be higher than the after-tax...
true and false . The cost of equity is expected to be higher than the after-tax cost of debt. Therefore, increasing the debt ratio will always lower the cost of capital. Firms with more uncertainty about future investment needs (both in terms of magnitude and type) should generally borrow more money than firms with less uncertainty Debt is cheaper source of financing than Equity. Explain the potential reasons this may be true or false
no example requires 5. Why can't a firm's manager infinitely use debt financing? Use your own...
no
example requires
5. Why can't a firm's manager infinitely use debt financing? Use your own words to explain it from the perspective of cost of capital.
1. The after-tax cost of debt is higher than the before-tax cost of debt. True or...
1. The after-tax cost of debt is higher than the before-tax cost of debt. True or False 2. The constant dividend growth model and CAPM are two ways of estimating a firm's cost of equity. True or False 3. The cost of capital uses the amounts of total assets and debt as the capital structure weights. True or False 4. In deriving the WACC, market values are preferred over book values for the capital structure weights. True or False 5....
The Nickel and Copper Store has a cost of equity of 8.6%, a pretax cost of...
The Nickel and Copper Store has a cost of equity of 8.6%, a pretax cost of debt of 2.7%, and a tax rate of 35%. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.76?
The Five and Dime Store has a cost of equity of 14.8 percent, a pretax cost...
The Five and Dime Store has a cost of equity of 14.8 percent, a pretax cost of debt of 6.7 percent, and a tax rate of 34 percent. What is the firm's weighted average cost of capital if the debt-equity ratio is .46?
Why do we use after-tax cost of debt but not after-tax cost of equity when calculating...
Why do we use after-tax cost of debt but not after-tax cost of equity when calculating the weighted average cost of capital (WACC)?
Which is true for a firm's overall cost of equity: Select one: a. It is generally...
Which is true for a firm's overall cost of equity: Select one: a. It is generally less than the firm's after-tax cost of debt b. It is generally less than a leveraged firm's WACC c. It is dependent on growth rate and risk level of the firm d. li is unaffected by changes in the market risk premium Which one of the following is the primary determinant of a firm's cost of capital? Select one: a. Use of Funds b....
You have estimated the after-tax cost of debt to be 5.5%, the cost of preferred to...
You have estimated the after-tax cost of debt to be 5.5%, the cost of preferred to be 6.5% and the cost of common to be 8.6%. Your firm obtains 40% of its financing from long-term debt, 20% of its financing from preferred stock and 40% of its financing from common stock. Calculate the firm’s cost of capital. List two reasons why the cost of common stock financing is higher than the effective cost of debt financing for firms.
Which of the following statements is true of the debt to equity ratio? A. The higher the debt to equity ratio, the gre...
Which of the following statements is true of the debt to equity ratio? A. The higher the debt to equity ratio, the greater the company's financial risk. B. If the debt to equity ratio is less than 1, the company is financing more assets with debt than with equity. C. If the debt to equity ratio is greater than 1, the company is financing more assets with equity than with debt. D. The higher the debt to equity ratio, the...
The cost of debt is usually lower than the cost of equity. The reason firms don't...
The cost of debt is usually lower than the cost of equity. The reason firms don't use only debt financing is: Multiple Choice as the use of debt increases, the cost of debt decreases until no debt financing is available as the use of debes, so does the cost of equity as the use of debt increases, so does the tax rebate that the firm receives as the use of debt increases, government regulation increases
no
example requires
5. Why can't a firm's manager infinitely use debt financing? Use your own words to explain it from the perspective of cost of capital.
Which is true for a firm's overall cost of equity: Select one: a. It is generally less than the firm's after-tax cost of debt b. It is generally less than a leveraged firm's WACC c. It is dependent on growth rate and risk level of the firm d. li is unaffected by changes in the market risk premium Which one of the following is the primary determinant of a firm's cost of capital? Select one: a. Use of Funds b....
The cost of debt is usually lower than the cost of equity. The reason firms don't use only debt financing is: Multiple Choice as the use of debt increases, the cost of debt decreases until no debt financing is available as the use of debes, so does the cost of equity as the use of debt increases, so does the tax rebate that the firm receives as the use of debt increases, government regulation increases
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