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Correct Answer: False: 1 Out of 1 Points

This document contains 8 multiple choice questions about weighted average cost of capital (WACC). WACC is used to calculate the average rate of return needed for a company's existing mix of capital, including equity and debt. It is used in capital budgeting to evaluate potential investments. The questions cover topics like what is included in the WACC calculation, the optimal capital structure, and calculating WACC given financial information about a company. The document tests understanding of fundamental concepts in corporate finance related to capital structure and cost of capital.

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Danielle
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70 views3 pages

Correct Answer: False: 1 Out of 1 Points

This document contains 8 multiple choice questions about weighted average cost of capital (WACC). WACC is used to calculate the average rate of return needed for a company's existing mix of capital, including equity and debt. It is used in capital budgeting to evaluate potential investments. The questions cover topics like what is included in the WACC calculation, the optimal capital structure, and calculating WACC given financial information about a company. The document tests understanding of fundamental concepts in corporate finance related to capital structure and cost of capital.

Uploaded by

Danielle
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Question 1

1 out of 1 points

WACC is the cost of raising capital, primarily used for operating activities.
Correct Answer: False

Question 2

1 out of 1 points

The first step pertaining to the decisions made by the financial manager is investing, in which
the company seeks for good investment opportunities before raising new capital.
Correct Answer: True

Question 3

1 out of 1 points

WACC is used in capital budgeting:


Correct Answer:

c. both a and b.

Question 4

1 out of 1 points

Which of the following statements is most correct with regard to the WACC formula?

Correct Answer:

d. Cost of preferred stock is not adjusted for the effect of taxes.

Question 5

1 out of 1 points

Edu Inc. has the following information:

Debt = P50M Interest rate = 8%


Preferred Stock (PS) = P30M Rate of return on PS = 10%

Common Stock (CS) = P20M Rate of return on CS = 14%

Tax rate = 30%

What is the Edu Inc.s WACC? (Answer in this format: e.g. 7%, 9.50%, 12.25%)

Correct Answer:
Evaluation Method Correct Answer Case Sensitivity
Exact Match 8.60%
Exact Match 8.60
Exact Match 8.6%
Exact Match 8.6

Question 6

1 out of 1 points

The optimal capital structure is the capital structure that maximizes shareholder value, stock
price and WACC.
Correct Answer: False

Question 7

1 out of 1 points

Which of the following statements about capital structure is most correct?


Correct
Answer: b. In general, long term sources of funds are included in the computation of
WACC while current liabilities (e.g. accounts payable and accruals) are excluded
because the latter are not investor-supplied funds.

Question 8

1 out of 1 points

The Nuguid Companys year-end balance sheet shows the following amounts:
Total Assets = P3M Total Liabilities = P1M Total Stockholders Equity = P2M

The Nuguid has no current liabilities. Its stockholders equity consists of common stocks with
par value per share of P2. Nuguids stock currently sells for P3.50. Using the DCF model, the
current value of its liabilities amounts to P1.5M.

Its cost of common equity is 16%, while interest rate on its debt is 10%. Marginal tax rate is
30%.

Calculate Nuguids WACC. (Answer in this format: e.g. 7%, 9.50%, 12.25%)
Correct Answer:
Evaluation Method Correct Answer Case Sensitivity
Exact Match 13.30%
Exact Match 13.30
Exact Match 13.3%
Exact Match 13.3

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