True concerning companies that do not pay dividends

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Reference no: EM131615886

1. Which of the following statements (if any) is (are) true concerning companies that do not pay dividends?

a. The cost of equity capital cannot be determined by using the CAPM, the risk premium on debt approach, or by estimating ke for comparable dividend-paying stocks in their industry.

b. The dividend capitalization model can be used to determine an accurate cost of equity capital.

c. The cost of equity capital is equal to the growth short-term rate of earnings per share.

d. The cost of equity capital can be estimated using the Capital Asset Pricing Model.

2. The optimal capital budget is determined by comparing the expected project returns to the company's

a. cost of equity schedule

b. marginal cost of capital schedule

c. computed break points

d. optimal opportunity curv

3. The managerial implications of capital structure theory include all of the following except:

a. optimal capital structure is influenced heavily by the business risk facing the firm

b. changes in capital structure result in changes in the market value of the firm's equity

c. capital structure changes transmit important information to investors

d. tax shield benefits from equity lead to increased firm value

Reference no: EM131615886

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