MCQ on Cost of Capital Test 1 Quiz PDF Download

MCQ: During planning period, a marginal cost for raising a new debt is classified as

debt cost

relevant cost

borrowing cost

embedded cost

Answer

MCQ: Cost of common stock is 14% and bond risk premium is 9% then bond yield will be

1.56%

5%

23%

64.28%

Answer

MCQ: In weighted average cost of capital, a company can affect its capital cost through

policy of capital structure

policy of dividends

policy of investment

all of the above

Answer

MCQ: A risk associated with project and way considered by well diversified stockholder is classified as

expected risk

beta risk

industry risk

returning risk

Answer
MCQ: Cost of common stock is 13% and bond risk premium is 5% then bond yield would be

$18

2.60%

8%

18%

Answer

MCQ: Variability for expected returns for projects is classified as

expected risk

stand-alone risk

variable risk

returning risk

Answer

MCQ: Cost of common stock is 16% and bond yield is 9% then bond risk premium would be

7%

$7

1.78%

25%

Answer

MCQ: If future return on common stock is 14% and rate on T-bonds is 5% then current market risk
premium will be
19%

9%

$9

$19

Answer

MCQ: Cost of capital is equal to required return rate on equity in case if investors are only

valuation manager

common stockholders

asset seller

equity dealer

Answer

MCQ: Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be

7.20%

7.2 times

17.14 times

$17.14

Answer

MCQ: Retention ratio is 0.60 and return on equity is 15.5% then growth retention model would be

14.90%

25.84%
16.10%

9.30%

Answer

MCQ: Method uses for an estimation of cost of equity is classified as

market cash flow

future cash flow method

discounted cash flow method

present cash flow method

Answer

MCQ: An attempt to make correction by adjusting historical beta to make it closer to an average beta is
classified as

adjusted stock

adjusted beta

adjusted coefficient

adjusted risk

Answer

MCQ: Method in which company finds other companies considered in same line of business to evaluate
divisions is classified as

pure play method

same play method

division line method

single product method

Answer

MCQ: Bond risk premium is added in to bond yield to calculate

cost of American option

cost of European option

cost of common stock

cost of preferred stock

Answer

Stock selling price is $45, an expected dividend is $10 and an expected growth rate is 8% then cost of
common stock would be

$55

$58

$53

30.22%

Answer

MCQ: A type of beta which incorporates about company such as changes in capital structure is classified
as

industry beta

market beta

subtracted beta
fundamental beta

Answer

MCQ: Dividend per share is $18 and sell it for $122 and floatation cost is $4 then component cost of
preferred stock will be

15.25%

0.1525 times

$15.25

0.15%

Answer

MCQ: In weighted average capital, capital structure weights estimation does not rely on value of

investors equity

market value of equity

book value of equity

stock equity

Answer

MCQ: Interest rates, tax rates and market risk premium are factors which an/a

industry cannot control

industry cannot control

firm must control

firm cannot control

Answer

For each component of capital, a required rate of return is considered as

component cost

evaluating cost

asset cost

asset depreciation value

Answer

MCQ: If payout ratio is 0.45 then retention ratio will be

0.55

1.45

1.82

0.45

Answer

MCQ: Stock selling price is $35, expected dividend is $5 and expected growth rate is 8% then cost of
common stock would be

$40

22.29%

0.1428

$80

Answer
MCQ: Retention ratio is 0.55 and return on equity is 12.5% then growth retention model would be

11.95%

6.88%

13.05%

22.72%

Answer

MCQ: Preferred dividend is divided by preferred stock price multiply by (1-floatation cost) is used to
calculate

transaction cost of preferred stock

financing of preferred stock

weighted cost of capital

component cost of preferred stock

Answer

MCQ: Stock selling price is $65, expected dividend is $20 and cost of common stock is 42% then
expected growth rate will be

0.1123 times

11.23%

11.23 times

$11.23

Answer

MCQ: In retention growth model, percent of net income firms usually pay out as shareholders dividends,
is classified as
payout ratio

payback ratio

growth retention ratio

present value of ratio

Answer

MCQ: In weighted average cost of capital, rising in interest rate leads to

increase in cost of debt

increase the capital structure

decrease in cost of debt

decrease the capital structure

Answer

MCQ: Bond risk premium is 3% and bond yield is 10.2% then cost of common stock will be

3.40%

13.20%

7.20%

30.60%

Answer

MCQ: Cost of new debt or marginal debt is also classified as

historical rate

embedded rate

marginal rate

Both A and B

Answer

MCQ: Bond yield is 12% and bond risk premium is 4.5% then cost of common stock would be

37.50%

7.50%

15.50%

2.67 times

Answer

MCQ: Forecast by analysts, retention growth model and historical growth rates are methods used for an

estimate future growth

estimate option future value

estimate option present value

estimate growth ratio

Answer

MCQ: Premium which is considered as difference of expected return on common stock and current yield
on Treasury bonds is called

current risk premium

past risk premium

beta premium

expected premium

Answer

MCQ: An interest rate which is paid by firm as soon as it issues debt is classified as pre-tax

term structure

market premium

risk premium

cost of debt

Answer

MCQ: Beta which is estimated as regression slope coefficient is classified as

historical beta

market beta

coefficient beta

riskier beta

Answer

MCQ: In weighted average cost of capital, capital components are funds that are usually offered by

stock market

investors

capitalist

exchange index
Answer

MCQ: Cost which is used to calculate weighted average cost of capital is classified as

weighted cost of capital

component cost of preferred stock

transaction cost of preferred stock

financing of preferred stock

Answer

MCQ: Special situation in which large projects are financed by with and securities claims on project's
cashflow is classified as

claimed securities

project financing

stock financing

interest cost

Answer

MCQ: Type of cost which is used to raise common equity by reinvesting internal earnings is classified as

cost of mortgage

cost of common equity

cost of stocks

cost of reserve assets

Answer
MCQ: If future return on common stock is 19% and rate on T-bonds is 11% then current market risk
premium will be

$30

30%

8%

$8

Answer

MCQ: Historical growth rates, analysis forecasts and retention growth model are approaches to estimate

present value of gain

growth rate

growth gain

discounted gain

Answer

MCQ: In weighted average cost of capital, cost of capital which is risk adjusted and developed for each
category of

long-term projects

industry [industrial] projects

divisional projects

short-term projects

Answer
MCQ: In retention growth model, payout ratio is subtracted from one to calculate

present value ratio

future value ratio

retention ratio

growth ratio

Answer

MCQ: If retention rate is 0.68 then payout rate will be

1.47%

1.68

0.32

0.68

Answer

MCQ: Cost of common stock is 15% and bond yield is 10.5% then bond risk premium will be

1.43%

$70

25.50%

4.50%

Answer

MCQ: Cost of equity which is raised by reinvesting earnings internally must be higher than the
cost of initial offering

cost of new common equity

cost of preferred equity

cost of floatation

Answer

MCQ: Dividend per share is $15 and sell it for $120 and floatation cost is $3.0 then component cost of
preferred stock will be

12.82 times

0.1282 times

12.82%

$12.82

Answer

MCQ: In pure play method, a company can calculate its own cost of capital with help of averaging an

other company capital policy

other company beta

other company cost

other division cost

Answer

MCQ: Capital budgeting decisions are analyzed with help of weighted average and for this purpose

component cost is used

common stock value is used

cost of capital is used

asset valuation is used

Answer

MCQ: A formula of after-tax component cost of debt is

interest rate-tax savings

marginal tax-required return

interest rate + tax savings

borrowing cost + embedded cost

Answer

Risk free rate is subtracted from expected market return is considered as

country risk

diversifiable risk

equity risk premium

market risk premium

Answer

MCQ: Type of variability in which a project contributes in return of company is considered as

variable risk

within firm risk

corporate risk
Both B and C

Answer

MCQ: Rate of required return by debt holders is used for estimation of

cost of debt

cost of equity

cost of internal capital

cost of reserve asset