Wacc Questions And Answers Pdf

wacc questions and answers pdf

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Beyond knowing the basics of how to construct a DCF, you also need to understand concepts such as WACC, Cost of Equity and the proper discount rates to use depending on the scenario. Interviewers also like to ask about Terminal Value - how you calculate it, advantages and disadvantages of different methods, and signs that it's "too high. First, you project out a company's financials using assumptions for revenue growth, expenses and Working Capital; then you get down to Free Cash Flow for each year, which you then sum up and discount to a Net Present Value, based on your discount rate - usually the Weighted Average Cost of Capital. Finally, you add the two together to determine the company's Enterprise Value. Walk me through how you get from Revenue to Free Cash Flow in the projections.

Practice Exam Questions on Wacc

Empirically, we find that the weighted average cost of capital matters for corporate investment. Practice merit scholarships assessment test, online learning weighted average cost of capital quiz questions for competitive in business majors for online business administration degree classes. Increase in WACC means increase in risk. These incremental changes are most correctly referred to as: the weighted average cost of capital; the marginal cost of capital; the cost of capital; the incremental cost of capital… It includes common stock, preferred stocks, bonds and other long term debts. No, because the weighted-average cost of capital will increase. For the existing structure, the cost of equity capital is Stock market B.

Post Reply. View Options. Supreme Being. Attachments Brealey Myers corporate finance Ch19 financing valuation df. Jennifer Blythe. Junior Member. There aren't rates prior to refinancing in the problem prompt.

Solutions. – Problems 1 and 2 can be moderated by more sophisticated statistical techniques. – Problem 3 can be lessened by adjusting for changes in business.

capital structure multiple choice questions and answers pdf

January ; DOI: Problems Relating to Capital Structure and Leverage 1. Equity and debt are the securities most commonly used. Assumptions of the Modigliani-Miller theory in a world without taxes: 1 Individuals can borrow at the same interest rate at which the firm borrows.

There is no difference between pretax and aftertax equity costs. Cost of Capital Practice Problems 1. Suppose that your firm is operating in a segmented capital market.

Discounted Cash Flow Interview Questions & Answers (Basic)

The publisher is John Wiley and Sons. You can navigate the site by either going to individual chapters and getting supporting material by chapter, or by going to the supporting material directly. The overheads and solutions to the problems are stored in pdf format, and you need Adobe Acrobat to read pdf files. You can download Acrobat Reader directly from the Adobe site. The spreadsheets are in Microsoft Excel 95 format, and can be used on either a Mac or Windows system.

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? It avoids the problem of computing the required rate of return for each investment proposal. Provide solutions to all answers including answers multiple choice questions ABC company follows NO growth strategy. The optimal capital structure has been achieved when the: a. Multiple Choice Questions 2 points each, total 60 points Note: Use the following format to write your answers of this section in your answer sheet. ABC company is financed with debt capital and equity capital.

Cost of Capital Practice Problems. 1. Why is it that, for a given The common stock of a company is riskier than the debt of the same company. on common stock are not deductible. 2. WACC = + + = = ​% b.

capital structure questions and answers pdf

Why is it that, for a given firm, that the required rate of return on equity is always greater than the required rate of return on its debt? Get help with your Weighted average cost of capital homework. Suppose that your firm is operating in a segmented capital market. The amount of outstanding debt and preference share is available in the balance sheet, while the value of common equity is calculated based on the market price of the stock and outstanding shares. The cost of capital will increase rapidly once you get outside the range, as shown by the blue Average Cost of Capital line in the graph below.

The return shareholders require on their investment in a firm is called the: a. The cost of capital: a. Which of the following statements are correct concerning the security market line SML approach to determining the cost of equity for a firm?

cost of capital questions and answers pdf


Nolberto V.


The return shareholders require on their investment in a firm is called the: a.

Erminia V.


Risk free rate is rRF = 6% and market risk premium (rm − rRF) = 8%. What is the beta of the company? Answer: WACC = wdrd(1 − T) + were.