2. The ___ for ABC Industries is defined as the return that ABC's shareholders require on their investment in the firm. T/F

4. A firm's weighted average cost of capital is another terms for the firm's return on equity. T/F

8. A change in a firm's tax rate will affect the firm's aftertax cost of: I. preferred. II. debt. III. equity. IV. capital.

Can be multiple

11. You have one estimated cost of equity for a firm based on the dividend growth model and a second estimated cost of equity based on the capital asset pricing model. What estimate should be used as the cost of equity when computing a firm's weighted average cost of capital?

A. the higher of the two estimates B. the capital asset pricing model estimate C. the capital asset pricing model estimate D. the lower of the two estimates E. the dividend growth model estimate

14. J&J Movers has 40,000 shares of common stock outstanding at a price of $34 a share. It also has 4,000 shares of preferred stock outstanding at a price of $58 a share. The firm has 9 percent, 10-year bonds outstanding with a total face value of $500,000. The bonds are currently quoted at 96 and pay interest semiannually. What is the capital structure weight of the firm's debt if the tax rate is 34 percent?

15. The market rate of return is 12.1 percent and the risk-free rate is 4.4 percent. Lagrangian Motion Systems has 26 percent more systematic risk than the market and has a growth rate of 6.9 percent. The firm's stock is currently selling for $55 a share and has a dividend yield of 4.8 percent. What is the firm's cost of equity (in percents)?

16. Hubble Deep Space Telemetry, Inc. issues only common stock and coupon bonds. The firm has a debt-equity ratio of 0.63. The cost of equity is 14.8 percent and the pre-tax cost of debt is 8.8 percent. The tax rate is 25.5 percent. What is the capital structure weight of the firm's equity (in percents)?

17. Boltzmann Energy has a beta of 1.06, a variance of 0.0229, a dividend growth rate of 2.9 percent, a stock price of $31 a share, and an expected annual dividend of $1.23 per share next year. The market rate of return is 9.3 percent and the risk-free rate is 4.7 percent. What is the cost of equity (in percents) for Boltzmann Energy?

18. ______ is the name given to the process of assigning discount rates to projects by utilizing a stair step method that assigns projects to various risk classes.

19. A firm's weighted average cost of capital is the required return on the existing assets of the firm. T/F

28. A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions. By doing so, the firm automatically gives preferential treatment in the allocation of funds to its riskiest division. T/F