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The company cost of capital: A

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1. The company cost of capital:
   
   
   A.
   measures what investors require from the company.
   
   B.
   depends on current profits and cash flows.
   
   C.
   is measured using security book values.
   
   D.
   depends on historical profits and cash flows.
2. XYZ Company issues common stock at a price of $25 a share. The firm expects to pay a dividend of $2.20 a share next year. If the dividend is expected to grow at 2.5% annually, what is XYZ's cost of common equity?
   
   
   A.
   6.3%
   
   B.
   11.3%
   
   C.
   13.7%
   
   D.
   8.9%
3. Find the required rate of return for equity investors of a firm with a beta of 1.3 when the risk free rate is 5% and the return on the market is 13.6%.
   
   
   A.
   11.54%
   
   B.
   13.08%
   
   C.
   16.18%
   
   D.
   18.02%
4. Plasti-tech Inc. is financed 60% with equity and 40% with debt. Currently, its debt has a pretax interest rate of 12%. Plasti-tech's common stock trades at $15.00 per share and its most recent dividend was $1.00. Future dividends are expected grow by 4%. If the tax rate is 34%, what is Plasti-tech's WACC?
   
   
   A.
   7.39%
   
   B.
   9.57%
   
   C.
   9.73%
   
   D.
   11.20%
5. The capital structure for the CR Corporation includes bonds valued at $5,500 and common stock valued at $11,000. If CR has an after-tax cost of debt of 6%, and a cost of common stock of 16%, what is its WACC?
   
   
   A.
   9.33%
   
   B.
   12.67%
   
   C.
   13.33%
   
   D.
   14.67%
6. What is the yield to maturity on Dotte Inc.'s bonds if its after-tax cost of debt is 10% and its tax rate is 35%?
   
   
   A.
   6.50%
   
   B.
   13.50%
   
   C.
   15.38%
   
   D.
   16.42%
7. Increasing debt financing will do all of the following except:
   
   
   A.
   cause investors to demand a higher interest rate on debt.
   
   B.
   increase the risk to the firm's common stockholders.
   
   C.
   cause stockholders to demand a higher return.
   
   D.
   decrease the firm's cost of common equity.
8. Suppose an analyst estimates that free cash flow will be $2.43 million in year 5. What is the present value of this free cash flow if the company cost of capital is 12%, the WACC is 10%, and the equity cost of capital is 15%?
   
   
   A.
   $2,113,043
   
   B.
   $1,208,139
   
   C.
   $1,508,839
   
   D.
   $1,378,847
9. WACC can be used to determine the value of a firm by discounting the firm's:
   
   
   A.
   after-tax net profits.
   
   B.
   pretax profits.
   
   C.
   cash inflows.
   
   D.
   free cash flows.