.Jacques Fauxpas is attempting to determine his company\'s weighted average cost
ID: 2684997 • Letter: #
Question
.Jacques Fauxpas is attempting to determine his company's weighted average cost of capital. His first step was to determine the rates of return for his company's long term debt, preferred stock, and common stock. He then adjusted these required rates of return by multiplying each return by one minus the company's marginal tax rate. Jacques is planning on using these three adjusted required return figures as his component costs of capital. How is Jacques doing so far? A. All three of Jacques' component costs are correct. B. Only the cost of debt is correct. C. Only the cost of preferred stock is correct. D. Only the cost of equity is correct. 16. A company would call in a bond issue for any of the following reasons EXCEPT A. to eliminate restrictive covenants. B. to reduce interest costs. C. to show higher reported profits. D. to issue new bonds at a higher rate of interest. 17. The yield to maturity of a bond A. is fixed in the indenture. B. is lower for higher risk bonds. C. is the same as the required rate of return on the bond. D. is generally equal to the coupon rate. 18. A bond that has a yield to maturity greater than its coupon rate will sell at a price A. below par. B. at par. C. above par. D. that is equal to the face value of the bond plus the value of all interest payments.Explanation / Answer
15) B. Only the cost of debt is correct., 16) A. to eliminate restrictive covenants., 17) B. is lower for higher risk bonds., 18) A. below par.
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