Which of the following regarding the weighted-average cost of capital is true? a. Taxes do not affect the weighted-average cost of capital. b. The tax effect of preferred stock dividends should be included in the calculation of weighted-average cost of capital. c. The tax effect of debt should be included in the calculation of the weighted-average cost of capital. d. The tax effect of common stock dividends should be included in the calculation of weighted-average cost of capital. 2. Which of the following statements about the cost of capital is incorrect? a. Flotation costs can increase the weighted average cost of capital. b. A company’s target capital structure affects its weighted average cost of capital. c. An increase in the risk-free rate is likely to increase the marginal costs of both debt and equity financing. d. If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will increase. e. Weighted average cost of capital calculations should be based on the after-tax costs of all the individual capital components. 3. Optimal capital structure requires selecting the best mix of a. common stock, preferred stock, and short-term debt. b. common stock, short-term debt, and long-term debt. c. preferred stock, common stock, and long-term debt. d. short-term debt, long-term debt, and preferred stock.
Which of the following regarding the weighted-average cost of capital is true? a. Taxes do not affect the weighted-average cost of capital. b. The tax effect of preferred stock dividends should be included in the calculation of weighted-average cost of capital. c. The tax effect of debt should be included in the calculation of the weighted-average cost of capital. d. The tax effect of common stock dividends should be included in the calculation of weighted-average cost of capital. 2. Which of the following statements about the cost of capital is incorrect? a. Flotation costs can increase the weighted average cost of capital. b. A company’s target capital structure affects its weighted average cost of capital. c. An increase in the risk-free rate is likely to increase the marginal costs of both debt and equity financing. d. If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will increase. e. Weighted average cost of capital calculations should be based on the after-tax costs of all the individual capital components. 3. Optimal capital structure requires selecting the best mix of a. common stock, preferred stock, and short-term debt. b. common stock, short-term debt, and long-term debt. c. preferred stock, common stock, and long-term debt. d. short-term debt, long-term debt, and preferred stock.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter11: Determining The Cost Of Capital
Section: Chapter Questions
Problem 3Q
Related questions
Question
1. Which of the following regarding the weighted-average cost of capital is true?
a. Taxes do not affect the weighted-average cost of capital.
b. The tax effect of preferred stock dividends should be included in the calculation of weighted-average cost of capital.
c. The tax effect of debt should be included in the calculation of the weighted-average cost of capital.
d. The tax effect of common stock dividends should be included in the calculation of weighted-average cost of capital.
2. Which of the following statements about the cost of capital is incorrect?
a. Flotation costs can increase the weighted average cost of capital.
b. A company’s target capital structure affects its weighted average cost of capital.
c. An increase in the risk-free rate is likely to increase the marginal costs of both debt and equity financing.
d. If a company’s tax rate increases, then, all else equal, its weighted average cost of capital will increase.
e. Weighted average cost of capital calculations should be based on the after-tax costs of all the individual capital components.
3. Optimal capital structure requires selecting the best mix of
a. common stock, preferred stock, and short-term debt.
b. common stock, short-term debt, and long-term debt.
c. preferred stock, common stock, and long-term debt.
d. short-term debt, long-term debt, and preferred stock.
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