#1
What is the primary purpose of calculating the Weighted Average Cost of Capital (WACC)?
To determine the overall cost of the firm's capital
To calculate the cost of equity capital
To evaluate the profitability of investment projects
To estimate the company's market share
#2
What is the primary objective of cost of capital estimation for a firm?
To minimize the weighted average cost of capital
To maximize shareholder wealth
To lower the company's overall expenses
To determine the company's tax liability
#3
What is the formula for calculating the cost of equity?
Dividend per share / Market price per share
Net income / Total equity
Risk-free rate + Beta * (Market return - Risk-free rate)
Interest expense / Total debt
#4
Which of the following factors does not affect the cost of debt?
Credit rating of the company
Market interest rates
Tax rate
Beta value of the stock
#5
What effect does an increase in a company's beta coefficient have on its cost of equity?
Increases the cost of equity
Decreases the cost of equity
Has no effect on the cost of equity
The effect depends on the risk-free rate
#6
Which of the following is NOT a component of the Capital Asset Pricing Model (CAPM)?
Risk-free rate
Market risk premium
Beta coefficient
Debt-to-equity ratio
#7
What is the relationship between risk and return according to the Capital Asset Pricing Model (CAPM)?
Positive correlation
Negative correlation
No correlation
Inversely proportional
#8
What does the term 'marginal cost of capital' refer to?
The average cost of a company's capital
The cost of raising additional capital
The cost of capital for long-term investments
The historical cost of capital
#9
Which of the following is NOT a factor that influences the cost of equity?
Market risk premium
Company's beta coefficient
Tax rate
Dividend payout ratio
#10
Which of the following statements about the Modigliani-Miller theorem is true?
It states that the cost of equity is equal to the cost of debt.
It argues that the capital structure does not affect the firm's value under certain conditions.
It suggests that increasing leverage always increases the firm's value.
It proposes that dividends are irrelevant to the firm's value.
#11
Which of the following is an implication of a higher Weighted Average Cost of Capital (WACC) for a company?
Lower risk
Higher expected returns
Decreased valuation
Reduced financial leverage
#12
Which of the following is NOT a method of estimating the cost of equity?
Dividend Growth Model
Bond Yield Plus Risk Premium Model
Gordon Growth Model
Accounting Rate of Return
#13
What is the relationship between the Weighted Average Cost of Capital (WACC) and the firm's valuation?
As WACC increases, firm valuation increases.
As WACC decreases, firm valuation decreases.
There is no relationship between WACC and firm valuation.
WACC has a direct impact on firm valuation.
#14
What is the main purpose of the Modigliani-Miller theorem in corporate finance?
To determine the optimal capital structure for a company
To calculate the weighted average cost of capital (WACC)
To evaluate the risk-return tradeoff of different investment projects
To establish conditions under which the capital structure is irrelevant
#15
What is the relationship between the Weighted Average Cost of Capital (WACC) and the firm's capital structure?
WACC increases as the firm's capital structure becomes more equity-oriented.
WACC decreases as the firm's capital structure becomes more debt-oriented.
WACC remains constant regardless of changes in the firm's capital structure.
WACC is independent of the firm's capital structure.
#16
Which of the following is a limitation of using the Weighted Average Cost of Capital (WACC) for investment appraisal?
It assumes that the company's capital structure remains constant.
It ignores the risk associated with individual projects.
It does not account for the cost of equity.
It overestimates the cost of debt.