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MCQs

Total Questions : 53 | Page 3 of 6 pages
Question 21. The cost of equity which is raised by reinvesting earnings internally must be higher than the
  1.    cost of initial offering
  2.    cost of new common equity
  3.    cost of preferred equity
  4.    cost of floatation
 Discuss Question
Answer: Option B. -> cost of new common equity
Answer: (b).cost of new common equity
Question 22. The dividend per share is $15 and sell it for $120 and floatation cost is $3.0 then the component cost of preferred stock will be
  1.    12.82 times
  2.    0.1282 times
  3.    0.1282
  4.    12.82
 Discuss Question
Answer: Option C. -> 0.1282
Answer: (c).0.1282
Question 23. In the pure play method, a company can calculate its own cost of capital with the help of averaging an
  1.    other company capital policy
  2.    other company beta
  3.    other company cost
  4.    other division cost
 Discuss Question
Answer: Option B. -> other company beta
Answer: (b).other company beta
Question 24. The capital budgeting decisions are analyzed with the help of weighted average and for this purpose
  1.    component cost is used
  2.    common stock value is used
  3.    cost of capital is used
  4.    asset valuation is used
 Discuss Question
Answer: Option C. -> cost of capital is used
Answer: (c).cost of capital is used
Question 25. A formula of after-tax component cost of debt is
  1.    interest rate-tax savings
  2.    marginal tax-required return
  3.    interest rate + tax savings
  4.    borrowing cost + embedded cost
 Discuss Question
Answer: Option A. -> interest rate-tax savings
Answer: (a).interest rate-tax savings
Question 26. The risk free rate is subtracted from expected market return is considered as
  1.    country risk
  2.    diversifiable risk
  3.    equity risk premium
  4.    market risk premium
 Discuss Question
Answer: Option C. -> equity risk premium
Answer: (c).equity risk premium
Question 27. The type of variability in which a project contributes in the return of company is considered as
  1.    variable risk
  2.    within firm risk
  3.    corporate risk
  4.    both b and c
 Discuss Question
Answer: Option D. -> both b and c
Answer: (d).both b and c
Question 28. The rate of required return by debt holders is used for the estimation of
  1.    cost of debt
  2.    cost of equity
  3.    cost of internal capital
  4.    cost of reserve assets
 Discuss Question
Answer: Option A. -> cost of debt
Answer: (a).cost of debt
Question 29. The variability for the expected returns for projects is classified as
  1.    expected risk
  2.    stand-alone risk
  3.    variable risk
  4.    returning risk
 Discuss Question
Answer: Option B. -> stand-alone risk
Answer: (b).stand-alone risk
Question 30. The cost of common stock is 16% and the bond yield is 9% then the bond risk premium would be
  1.    0.07
  2.    7
  3.    0.0178
  4.    0.25
 Discuss Question
Answer: Option A. -> 0.07
Answer: (a).0.07

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