WEEK 5 - COST OF CAPITAL
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If the cost of debt is 5.65%, weight of debt is 45%, tax rate is 20%, cost of equity is 8%, then WACC is:

  • 6.94%
  • 6.43% (correct)
  • 6.06%
  • 4.91%

    • f the cost of debt is 6%, the market risk premium is 7.5%, beta is 1.1, and the risk-free rate is 3%, then the WACC is (assuming a debt weight of 30%, an equity weight of 70%, and a tax rate of 40%):

  • 9.68%
  • 6.65%
  • 8.96% (correct)
  • 6.53%

    • Which one of the following statements is correct

  • A bank can lend Roger $100,000 at an interest rate of 7.8% to fully fund his investment project. The expected return of similar projects with comparable risk is 10%. Roger should use 7.8% as the cost of capital for the project.
  • To calculate WACC, we should use after-tax figure for cost of equity but not for cost of debt.
  • The capital asset pricing model can be used to estimate the required return of equity. (correct)
  • The expected return on equity CANNOT be viewed as the firm’s cost of equity capita

    • The value of a firm is maximized when the:

    <p>Weighted average cost of capital is minimized.</p> Signup and view all the answers

    In a world WITHOUT tax, which one of the following is correct?

    <p>No matter what the capital structure, the overall WACC remains the same.</p> Signup and view all the answers

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