1) When retained earnings are exhausted, the MCC breaks upward. What happens if the firm continues to...

Question:

1) When retained earnings are exhausted, the MCC breaks upward. What happens if the firm continues to raise capital after that? Does the MCC remain flat or move further upward? In either case, why?
2) Which is incorrect in regard to a firm's It is the risk adjusted that is appropriate for all projects under consideration by the firm.
b) It is the average rate for using the firm's funds.
c) It is the of using the firm's funds.
d) It is the minimum rate of return a project must generate to warrant consideration by management.
3) Why should the debt portion of the WACC be adjusted for tax?
a) Because the interest paid on debt is not taxable at the firm level.
b) Because the interest paid on debt is not taxable at the investor level.
c) Because all components of the WACC are not taxable.
d) Because the principle paid on the debt is not taxable at the firm level.
4) The weighted-average Blends the returns required by all suppliers of funds.
b) Incorporates the firm's in its calculation.
c) Is virtually never lower than the nor higher than the cost of equity.
d) All of the above
5) Which of the following is not a component used in calculating the The cost of short-term debt
b) The cost of long-term debt
c) The cost of retained earnings
d) The cost of preferred stock
e) The cost of The WACC is used in evaluating newly proposed projects. It should therefore be calculated using capital component costs and a Based on the capital on the firm's books because that's the capital it already has and will use to support new projects
b) Based on conditions the firm will encounter when raising new capital in the next year because that's the capital it will use to support new projects
c) Based on existing capital on the books because both old and new projects have to be supported
d) Based on existing equity but new debt amounts and costs
7) The can be described best as the:
a) Rate a firm pays for the use of invested funds
b) The minimum return required of projects that are about as risky as the firm
c) Either of the above
d) None of the above
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