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Explore 20 free Cost of Capital questions in CFA Level I Finance. Each question opens with answer choices, the correct answer and a worked solution.
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Showing questions 1–20 of 20.
A company can pay for its assets in two ways. One is equity financing and the other is:Read the answer and worked solution →The average of a firm's debt and equity costs, weighted by their share of firm value, is the:Read the answer and worked solution →The weights used in that average are the proportions of debt and equity in the firm's:Read the answer and worked solution →A firm's cost of debt is described as the interest rate it would have to pay to do what with its existing debt?Read the answer and worked solution →Interest is deductible, so the true cost of borrowing to the firm is the:Read the answer and worked solution →Because interest reduces the tax bill, firms are encouraged to borrow. That effect is the interest:Read the answer and worked solution →Unlike the cost of debt, the cost of common stock capital cannot be observed directly. It must instead be:Read the answer and worked solution →Two primary methods estimate that cost: the constant dividend growth model and the:Read the answer and worked solution →A firm has an equity beta of 1.3. Compared with the average stock, its systematic risk is:Read the answer and worked solution →An analyst needs a proxy for the risk-free rate and turns to the yield on:Read the answer and worked solution →Using that model requires assumptions about beta, the risk-free rate and the market:Read the answer and worked solution →To estimate that premium, analysts look at:Read the answer and worked solution →Issuing new shares brings extra expenses for SEC filing and investment banker fees. Those are called:Read the answer and worked solution →Because of those costs, the firm does not receive the full price investors pay. The amount available to finance assets is therefore:Read the answer and worked solution →The debt a firm chooses to use is often referred to as financial:Read the answer and worked solution →If a company fails, claims are settled in a fixed order. First in line are the:Read the answer and worked solution →Unlike a dividend on common equity, the dividend on preferred stock is:Read the answer and worked solution →Preferred shareholders differ from lenders in one important respect. They cannot force the company into:Read the answer and worked solution →A theory weighs the advantages of debt against its disadvantages in the capital structure. That theory is:Read the answer and worked solution →As a firm keeps adding leverage, one risk keeps rising. That risk is:Read the answer and worked solution →
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