MCQ On Cost Of Capital

2.

Cost of common stock is 13% and bond risk premium is 5% then bond yield is

$18
2.60%
8%
18%

Correct Answer

A. 8%

Explanation

The bond yield can be calculated by adding the bond risk premium to the cost of common stock. In this case, the cost of common stock is 13% and the bond risk premium is 5%. Adding these two percentages together gives a bond yield of 18%. Therefore, the correct answer is 18%.

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3.

Risk associated with project and way considered by well diversified stockholder is classified as

Expected risk
Beta risk
Industry risk
Returning risk

Correct Answer

A. Beta risk

Explanation

Beta risk refers to the risk associated with a specific stock or investment in relation to the overall market. Well-diversified stockholders consider beta risk as they analyze the volatility of a particular stock compared to the broader market. Beta measures the stock's sensitivity to market movements, indicating how much the stock's value is likely to fluctuate in relation to the market. A higher beta indicates greater volatility and risk, while a lower beta suggests less risk. Therefore, beta risk is the appropriate classification for the risk associated with a project that is considered by well-diversified stockholders.

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4.

Cost of common stock is 14% and bond risk premium is 9% then bond yield is

1.56%
5%
23%
64.28%

Correct Answer

A. 5%

Explanation

The bond yield is 5% because it is calculated by adding the cost of common stock (14%) and the bond risk premium (9%). Therefore, 14% + 9% = 23%. However, the bond yield is expressed as a percentage, so the answer is 23% converted to 5%.

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1

5.

During planning period, marginal cost to raise a new debt is classified as

Debt cost
Relevant cost
Borrowing cost
Embedded cost

Correct Answer

A. Relevant cost

Explanation

During the planning period, the marginal cost to raise a new debt is classified as a relevant cost. This is because the marginal cost represents the additional cost incurred by the company when raising a new debt. In the context of financial planning, relevant costs are those that have an impact on the decision-making process. In this case, the marginal cost of raising a new debt is relevant because it directly affects the financial position and obligations of the company.

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MCQ On Cost Of Capital

In weighted average cost of capital, company can affect its capital cost through

Quiz Preview

Cost of common stock is 13% and bond risk premium is 5% then bond yield is

Risk associated with project and way considered by well diversified stockholder is classified as

Cost of common stock is 14% and bond risk premium is 9% then bond yield is

During planning period, marginal cost to raise a new debt is classified as