The cost of raising capital with debt is typically less costly for a firm than raising...
The cost of raising capital with debt is typically less costly for a firm than raising capital with preferred stock. Which one of the following is one of the reasons for this?
Preferred stocks are more senior than bonds.
Interest is a tax-deductible cost, preferred dividends are not.
Bonds generally have a longer maturity than preferred stocks.
The interest from bonds is compounded more frequently than the dividends from preferred stocks.
Homework Answers
The preferred dividend is profit to the preference capital holder's whereas debt is borrowed capital which is a burden to the company, thus interest on preference dividends is not tax deductible but interest on debts are,
B)
Interest is a tax-deductible cost, preferred dividends are not.
Add Answer to:
The cost of raising capital with debt is typically less costly
for a firm than raising...
Which of the following statements is true? Equity is more costly to raise than debt because...
Which of the following statements is true? Equity is more costly to raise than debt because IPOs take a long time to organize Debt is more costly to raise than equity because it is riskier, thereby requiring higher returns Equity is more costly to raise than debt because it is riskier, thereby requiring higher returns Debt is more costly to raise than equity because the bond market is illiquid What is the goal of the Firm? To maximize shareholder value...
(Individual or component costs of capital) Your firm is considering a new investment proposal and would...
(Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1.000 par value (face value) and a contract or coupon interest rate of 12.4 percent that is paid semiannually. The bond is currently selling for a price of $1,125 and will mature in 10...
1Equity capital can be raised through A) the money market. B) the NYSE bond market C)...
1Equity capital can be raised through A) the money market. B) the NYSE bond market C) retained earnings and the stock market D) a private placement with an insurance company as the creditor 2.As a form of financing, equity capital A) has a maturity date B) is only liquidated in bankruptcy. C) is temporary D) has priority over bonds 3.Key differences between common stock and bonds include all of the following EXCEPT A) common stockholders have a voice in management;...
the cost of raising capital through issuing The cost of raising capital through retained earnings is...
the cost of raising capital through issuing The cost of raising capital through retained earnings is new common stock. greater than less than The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67%, while the market risk premium is 5.75%. the Allen Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Allen's cost of equity is The cost of equity using the bond yield plus risk premium approach...
One way for a firm to reduce its cost of capital is to: d) You can't...
One way for a firm to reduce its cost of capital is to: d) You can't - your cost of capital is determined by investor's required rate of return b) Don't pay dividends, thus reducing the amount of money paid to shareholders a) Replace existing bonds with new bonds which carry a lower coupon rate of interest c) Use lower cost capital (e.g., debt) to retire or pay-off higher cost capital (e.g., preferred stock)
Facebook's management is considering purchasing a competitor for a substantial amount of money. The CFO and...
Facebook's management is considering purchasing a competitor for a substantial amount of money. The CFO and Treasurer are looking at various options for financing the purchase. Which of the following are reasons they might prefer using bonds (debt) to finance the acquisition Vs. the issuance of new stock (equity)? A the cost of borrowing debt is generally cheaper than equity due to the lower yield required by investors and the fact that interest expense is generally a deductible expense in...
If the WACC for your firm is 7.45% and the target capital structure is 25% debt,...
If the WACC for your firm is 7.45% and the target capital structure is 25% debt, 5% preferred stock, and 70% common equity, what would the cost of raising an additional $1 be for your firm? Select one: a. $7.45 b. $25 c. 70% d. $3.60
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....
Suppose you are trying to estimate the after tax cost of debt for a firm as...
Suppose you are trying to estimate the after tax cost of debt for a firm as part of the calculation of the Weighted Average Cost of Capital (WACC). The corporate tax rate for this firm is 32%. The firm's bonds pay interest semiannually with a 6.9% coupon rate and have a maturity of 14 years. If the annual yield to maturity of the bonds is 6.61%, what is the after tax cost of debt for this firm? (Answer to the...
Blue Oyster is considering investing in a project whose risk is greater than the firm's current...
Blue Oyster is considering investing in a project whose risk is greater than the firm's current risk level based on any method for assessing risk. Which of the following should management do when evaluating this project? To take the higher risk level into account, they will need to use a discount rate that is greater than the cost of capital to evaluate the project. To take the higher risk level into account, they will need to increase the flotation expenses...
(Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1.000 par value (face value) and a contract or coupon interest rate of 12.4 percent that is paid semiannually. The bond is currently selling for a price of $1,125 and will mature in 10...
1Equity capital can be raised through A) the money market. B) the NYSE bond market C) retained earnings and the stock market D) a private placement with an insurance company as the creditor 2.As a form of financing, equity capital A) has a maturity date B) is only liquidated in bankruptcy. C) is temporary D) has priority over bonds 3.Key differences between common stock and bonds include all of the following EXCEPT A) common stockholders have a voice in management;...
the cost of raising capital through issuing The cost of raising capital through retained earnings is new common stock. greater than less than The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67%, while the market risk premium is 5.75%. the Allen Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Allen's cost of equity is The cost of equity using the bond yield plus risk premium approach...
One way for a firm to reduce its cost of capital is to: d) You can't - your cost of capital is determined by investor's required rate of return b) Don't pay dividends, thus reducing the amount of money paid to shareholders a) Replace existing bonds with new bonds which carry a lower coupon rate of interest c) Use lower cost capital (e.g., debt) to retire or pay-off higher cost capital (e.g., preferred stock)
Blue Oyster is considering investing in a project whose risk is greater than the firm's current risk level based on any method for assessing risk. Which of the following should management do when evaluating this project? To take the higher risk level into account, they will need to use a discount rate that is greater than the cost of capital to evaluate the project. To take the higher risk level into account, they will need to increase the flotation expenses...
Most questions answered within 3 hours.
-
The rate constant of a first-order reaction is 2.95 × 10−4 s−1
at 350.° C. If...
asked 6 minutes ago -
implement a class called PiggyBank that will be used to
represent a collection of coins. Functionality...
asked 2 minutes from now -
2. Use the following information in the table to answer the
following questions. (Numbers are in...
asked 3 minutes ago -
A martial artist is practicing breaking 5 boards. He is able to
break aboard with probability...
asked 3 minutes ago -
The fuel economy of a 2011 Lexus RX 350 2wd 6 cylinder 3.5 L
automatic 5...
asked 12 minutes ago -
i.
the synthesized compund 2-bromo-butanal i have a IR peak at about
3200 and one at...
asked 12 minutes ago -
A
752 mL sample of water was placed in a 1000 gram pan of aluminum.
The...
asked 23 minutes ago -
1.In the context of chelation, what does binding strength mean?
What happens at the molecular level...
asked 16 minutes ago -
Describe two obstacles that makes fixing atmospheric nitrogen
difficult.
asked 35 minutes ago -
Evelyn incorporates her sole proprietorship, transferring it to
newly formed Papaya Corporation. The assets transferred have...
asked 21 minutes ago -
Assume that in a hydrogen atom, the electron circles the nucleus
in a circle of radius...
asked 30 minutes ago -
1 point) Given the significance level α=0.01 find the following:
(a) left-tailed z value z= (b)...
asked 24 minutes ago