返回列表 发帖

Reading 45: Cost of Capital - LOS g ~ Q1-2

1.The after-tax cost of preferred stock is always:

A)   higher than the cost of common shares.

B)   less than the after-tax cost of debt.

C)   equal to the before-tax cost of preferred stock.

D)   less than the before-tax cost of preferred stock.

2.Which of the following statements is most accurate regarding a firm’s cost of preferred shares? A firm’s cost of preferred stock is:

A)   the market price of the preferred shares as a percentage of its issuance price.

B)   the dividend yield on the firm’s newly-issued preferred stock.

C)   approximately equal to the yield on a BBB corporate bond.

D)   approximately equal to the market price of the firm’s debt as a percentage of the market price of its common shares.

答案和详解如下:

1.The after-tax cost of preferred stock is always:

A)   higher than the cost of common shares.

B)   less than the after-tax cost of debt.

C)   equal to the before-tax cost of preferred stock.

D)   less than the before-tax cost of preferred stock.

The correct answer was C)

The after-tax cost of preferred stock is equal to the before-tax cost of preferred stock, because preferred stock dividends are not tax deductible. The cost of preferred shares is usually higher than the cost of debt, but less than the cost of common shares.

2.Which of the following statements is most accurate regarding a firm’s cost of preferred shares? A firm’s cost of preferred stock is:

A)   the market price of the preferred shares as a percentage of its issuance price.

B)   the dividend yield on the firm’s newly-issued preferred stock.

C)   approximately equal to the yield on a BBB corporate bond.

D)   approximately equal to the market price of the firm’s debt as a percentage of the market price of its common shares.

The correct answer was B)

The newly-issued preferred shares of most companies generally sell at par. As such, the dividend yield on a firm’s newly-issued preferred shares is the market’s required rate of return. The yield on a BBB corporate bond reflects a pre-tax cost of debt. The other choices make no sense.

TOP

s

TOP

s

TOP

返回列表