MCQ On Cost Of Capital

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| By Mehtajimmit
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Mehtajimmit
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Quizzes Created: 12 | Total Attempts: 30,459
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  • 1/5 Questions

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

    • Policy of capital structure
    • Policy of dividends
    • Policy of investment
    • All of above
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About This Quiz

This MCQ quiz on Cost of Capital covers key concepts such as marginal costs of new debt, calculations of bond yields, and the impact of weighted average cost of capital on company finances. It assesses understanding of beta risk and its relevance to diversified stockholders.

Capital Budgeting Quizzes & Trivia

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  • 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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  • 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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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Apr 13, 2016
    Quiz Created by
    Mehtajimmit
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