Cost Of Capital(Financial Management And Financial Markets ) Questions and Answers

Question 1. The stock selling price is $45, an expected dividend is $10 and an expected growth rate is 8% then cost of common stock would be
  1.    55
  2.    58
  3.    53
  4.    0.3022
Explanation:-
Answer: Option D. -> 0.3022
Answer: (d).0.3022
Question 2. A type of beta which incorporates about company such as changes in capital structure is classified as
  1.    industry beta
  2.    market beta
  3.    subtracted beta
  4.    fundamental beta
Explanation:-
Answer: Option D. -> fundamental beta
Answer: (d).fundamental beta
Question 3. The dividend per share is $18 and sell it for $122 and floatation cost is $4 then the component cost of preferred stock will be
  1.    0.1525
  2.    0.1525 times
  3.    15.25
  4.    0.001525
Explanation:-
Answer: Option A. -> 0.1525
Answer: (a).0.1525
Question 4. In weighted average capital, the capital structure weights estimation does not rely on the value of
  1.    investors equity
  2.    market value of equity
  3.    book value of equity
  4.    stock equity
Explanation:-
Answer: Option C. -> book value of equity
Answer: (c).book value of equity
Question 5. The interest rates, tax rates and market risk premium are the factors which an/a
  1.    industry cannot control
  2.    industry cannot control
  3.    firm must control
  4.    firm cannot control
Explanation:-
Answer: Option D. -> firm cannot control
Answer: (d).firm cannot control
Question 6. The bond yield is 12% and the bond risk premium is 4.5% then the cost of common stock would be
  1.    0.375
  2.    0.075
  3.    0.155
  4.    2.67 times
Explanation:-
Answer: Option C. -> 0.155
Answer: (c).0.155
Question 7. The premium which is considered as difference of expected return on common stock and current yield on Treasury bonds is called
  1.    current risk premium
  2.    past risk premium
  3.    beta premium
  4.    expected premium
Explanation:-
Answer: Option A. -> current risk premium
Answer: (a).current risk premium
Question 8. An interest rate which is paid by the firm as soon as it issues the debt is classified as pre-tax
  1.    term structure
  2.    market premium
  3.    risk premium
  4.    cost of debt
Explanation:-
Answer: Option D. -> cost of debt
Answer: (d).cost of debt
Question 9. The beta which is estimated as regression slope coefficient is classified as
  1.    historical beta
  2.    market beta
  3.    coefficient beta
  4.    riskier beta
Explanation:-
Answer: Option A. -> historical beta
Answer: (a).historical beta
Question 10. The forecast by analysts, retention growth model and historical growth rates are the methods used for an
  1.    estimate future growth
  2.    estimate option future value
  3.    estimate option present value
  4.    estimate growth ratio
Explanation:-
Answer: Option A. -> estimate future growth
Answer: (a).estimate future growth
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