problem1: The pre-tax cost of debt for a new issue of debt is determined by
[A] the investor's required rate of return on issued stock.
[B] the yield to maturity of outstanding bonds.
[C] the coupon rate of existing debt.
[D] all of the above.
problem2: Although debt financing is usually the cheapest component of capital, it cannot be used to excess because
[A] interest rates may change.
[B] the firm's stock price will increase and raise the cost of equity financing.
[C] the financial risk of the firm may increase and thus drive up the cost of all sources of financing.
[D] underwriting costs may change.
problem3: Applying higher discount rates,
[A] depreciation policy makes no difference.
[B] later year depreciation has a higher net present value.
[C] accelerated cost recovery depreciation is more valuable than straight line.
[D] straight-line depreciation is more valuable than the accelerated cost recovery system of depreciation.
problem4: In applying the internal rate of return method, it is supposed that cash flows can be reinvested at
[A] the internal rate of return
[B] the prevailing interest rate
[C] the cost of equity
[D] the cost of capital