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Which one of a firm's sources of new capital usually has the lowest after-tax cost?
Debt is a cheaper source of financing than equity. In addition, there is a tax deduction for interest paid on debt.
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Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?
WACC is used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the WACC should continuously add to the value of the firm.
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Which one of the following factors might cause a firm to increase the debt in its financial structure?
Interest on debt financing is tax-deductible whereas dividends from equity are not. An increase in tax rates might cause a firm to increase debt financing.
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The marketable securities with the least amount of default risk are:
Default risk is the risk that the security will not be paid. US Treasury securities are issued by the Treasury Department which has no risk of non payment.
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Which of the following measurement models is being used if a calculation includes risk-free rate, beta coefficient, rate of return, and required rate of return?
These factors are included in the calculation of CAPM.
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Which of the following would never be included in the WACC formula?
Risk is not assessed in calculating the WACC. WACC is used to determine the cost of financing for a firm.
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