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The overall cost of capital is the:
Firms must at least earn a rate of return on investments equal to their cost of capital, otherwise the investments are losing money and decreasing value.
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ABC company is determining how to finance some long term debt projects. ABC has decided it prefers the benefits of no fixed charges, no fixed maturity date, and an increase in the creditworthiness of the company. Which of the following would best meet ABC's financing requirements?
Common stock does not require payment, does not mature, and decreases the debt to equity ratio as there is no debt incurred.
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Using the capital asset pricing model, the required rate of return for a firm with a beta of 1.25 when the market return is 14% and the risk-free rate is 6% is:
Cost of retained earnings=6% + 1.25 (14% - 6%) = 16%
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The cost of debt most frequently is measured as:
Actual interest rates minus tax savings is the most frequently used measure for cost of debt.
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The benefits of debt financing over equity financing are likely to be highest in which of the following situations?
The benefits of debt financing over equity financing are likely to be highest if marginal tax rates are high and if there are few noninterest tax benefits.
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Of the following, which would not impact the CAPM formula in determining a firm's cost of retained earnings?
Treasury yield is the same as the risk-free rate, which would be included in CAPM as well as beta. Net income is not.
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