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problem1: Which one of the following statements is correct concerning capital structure weights?

[A] An increase in the debt-equity ratio will increase the weight of the common stock

[B] the repurchase of preferred stock will not affect the weight of the debt

[C] capital structure weights are constant over time

[D] a new bond issue will not affect the weight of the firm's preferred stock

[E] the issuance of additional shares of common stock will decrease the weight of the preferred stock

problem2: All else constant, which of the following will increase the aftertax cost of debt for a firm?

increase in the yield to maturity of the firm's outstanding debt 

decrease in the yield to maturity of the firm's outstanding debt

increase in the firm's tax rate

decrease in the firm's tax rate

[A] I only

[B] I and III only

[C] I and IV only

[D] II and III only

[E] II and IV only

problem3: All else constant, an increase in a firm's cost of debt:

[A] Will lower the firm's weighted average cost of capital

[B] Will lower the firm's cost of equity

[C] Could be caused by an increase in the firm's tax rate

[D] Will result in an increase in the firm's cost of capital

[E] Will increase the firm's capital structure weight of debt

problem4: A company's weighted average cost of capital:

[A] varies inversely with the firm's pretax cost of debt

[B] is the required return on the existing assets of the firm

[C] decreases when the firm's tax rate decreases

[D] is another terms for the firm's return on equity

[E] is the required return for each of the firm's proposed projects

problem5: All else constant, the weighted average cost of capital for a firm will decrease if:

[A] the firm replaces some of its debt with preferred stock

[B] corporate taxes are eliminated

[C] a firm's bonds start selling at a premium rather at a discount

[D] the market risk premium increases

[E] the dividend yield on the common stock increases

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M923175

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