Financial Management - Study Mode
[#776] In weighted average cost of capital, cost of capital which is risk adjusted and developed for each category of
Correct Answer
(B) industry [industrial] projects
Explanation
Solution: In weighted average cost of capital, cost of capital which is risk adjusted and developed for each category of industry [industrial] projects. The weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
[#777] In retention growth model, payout ratio is subtracted from one to calculate
Correct Answer
(C) retention ratio
Explanation
Solution: In retention growth model, payout ratio is subtracted from one to calculate retention ratio. The retention ratio refers to the percentage of net income that is retained to grow the business, rather than being paid out as dividends.
[#778] If retention rate is 0.68 then payout rate will be
Correct Answer
(C) 0.32
[#779] Cost of common stock is 15% and bond yield is 10.5% then bond risk premium will be
Correct Answer
(D) 4.50%
Explanation
Solution: Bond risk premium = Cost of common stock - Bond yeild = 15% - 10.5% = 4.5%.
[#780] Cost of equity which is raised by reinvesting earnings internally must be higher than the
Correct Answer
(B) cost of new common equity
Explanation
Solution: Cost of equity which is raised by reinvesting earnings internally must be higher than the cost of new common equity. The cost of equity is the return a company requires to decide if an investment meets capital return requirements.