After tax and before tax costs for cost of preferred stock

Assignment Help Financial Management

Reference no: EM132054496

Choose the best answer, and why.

1. In calculating WACC, we calculate After Tax cost of debt but do not make any such distinction between after tax and before tax costs for cost of preferred stock or cost of common equity.

A. This is because debt is the least risky component of capital

B. This is because debt is the most risky component of capital, because too much debt can push the company into bankruptcy, which is not the case with preferred stock or common equity

C. This is because of regulatory reasons

D. This is only because of corporate tax reasons

2. Beta for a stock, the most common measure in analyzing risk return trade- offs in finance is called “stand-alone “risk.

A. This is true

B. This is false

C. This question cannot be answered from the given information

D. Actually, it can be both, depending on circumstances

3. I have problems in understanding the concept of “risk aversion” Which of the following is correct?

A. A more risk averse person would require less return to face the face same risk as a less risk averse person

B. No, he would require more return because his aversion is higher

C. They both would require the same return, because in the final analysis, risk aversion, does not matter.

D. Risk aversion is morally wrong, so forget about the concept, nothing to understand.

Reference no: EM132054496

Questions Cloud

Principal risk return relationship most commonly : The principal risk return relationship most commonly used in finance (particularly at our level) is called CAPM or SML?

Greenly insurance company : Greenly has worked hard over the past year and has increased their marketing efforts to reach certain “untapped” demographics.

Equivalent annual annuity of most profitable project : Each project has a WACC of 9%. What is the equivalent annual annuity of the most profitable project?

Market value of firm before-after repurchase announcement : What is the market value of the firm before and after repurchase announcement? What is expected return on the equity of otherwise identical all-equity firm.

After tax and before tax costs for cost of preferred stock : calculate After Tax cost of debt but do not make any such distinction between after tax-before tax costs for cost of preferred stock or cost of common equity

Find the pseudo-american option value : The risk-free interest rate is 0.8% per month, and the stock’s volatility (standard deviation) = 16% per month. Find the pseudo-American option value.

What happens to the delta of the portfolio : What happens to the delta of the portfolio if the stock price becomes very small?

Calculate the value of call option on the stock : Calculate the value of a call option on the stock with an exercise price of $126.

Defined benefit plan to defined contribution plan : Why is it that over the past several years employers have been moving from a defined benefit plan to a defined contribution plan?

User Account

All Pages