1) firm\'s cost of capital: A) A Is independent of the firm\'s capital structure
ID: 2752131 • Letter: 1
Question
1) firm's cost of capital:
A) A Is independent of the firm's capital structure.
B ) Depends upon how the funds raised are going to be spent.
C )Will decrease as the risk level of the firm increases.
D) Should be applied as the discount rate for any project considered by the firm.
2) You are planning a trip to Australia. Your hotel will cost you A$110 per night for seven nights. You expect to spend another A$3,400 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars if $1 = A$1.0787?
A $3,866
B $4,088
C $4,452
D $4,498
3) Deep Hollow Markets has a target capital structure of 30 percent debt, 10 percent preferred stock, and 60 percent common stock. The flotation costs are 10.5 percent for common stock, 8.2 percent for preferred stock, and 5.8 percent for debt. The corporate tax rate is 35 percent. What is the weighted average flotation cost?
A 9.62 percent
B 7.97 percent
C 7.11 percent
D 8.86 percent
1) firm's cost of capital:
Explanation / Answer
1)
The correct answer is option D.
Cost of capital will be used as the discouting factor while accepting the project.
2)
Number of nights = 7
Rate charged per night = A$110
Cost of lodging = 7*110 = A$770
Meals cost = A$3,400
Total Cost = 3400+770 = A$4,170
Converion rate = 1$ = A$1.0787
Total cost in dollars = $4,170 / 1.0787 = $3865.76
Therefore, the correct answer is option A.
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