FINC 324 Exam Questions & Answers
Capital budgeting decisions that include both investment and financing decisions can be
analyzed by:
I) Adjusting the present value
II) Adjusting the discount rate
III) Ignoring fin
...
FINC 324 Exam Questions & Answers
Capital budgeting decisions that include both investment and financing decisions can be
analyzed by:
I) Adjusting the present value
II) Adjusting the discount rate
III) Ignoring financing mix - ✔✔D. I and II only
Total market value of a firm (V): [D = market value of debt; E = market value of equity] - ✔✔A
3. The after-tax weighted average cost of capital is determined by:
A. Multiplying the weighted average after tax cost of debt by the weighted average cost of
equity
B. Adding the weighted average before tax cost of debt to the weighted average cost of equity
C. Adding the weighted average after tax cost of debt to the weighted average cost of equity
D. Dividing the weighted average before tax cost of debt to the weighted average cost of
equity - ✔✔C
4. The after-tax weighted average cost of capital (WACC) is calculated as:
A. WACC = rD (D/V) + rE (E/V); (where V = D + E)
B. WACC = rD (1 - TC)(D/V) + rE (E/V); (where V = D + E)
C. WACC = rD (D/V) + rE (1 - TC)(E/V); (where V = D + E)
D. None of the above - ✔✔B
5. In calculating the weighted average cost of capital, the values used for D, E and V are:
A. book values
B. liquidating values
C. market values
D. none of the above - ✔✔C
Given the following data for Vinyard Corporation:
D=1000
V=4000
E=3000
V=4000
Calculate the proportions of debt (D/V) and equity (E/V) for the firm that you would use for
estimating the weighted average cost of capital (WACC):
A. 40% debt and 60% equity
B. 50% debt and 50% equity
C. 25% debt and 75% equity
D. none of the given values - ✔✔C. Use market value
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