TRUE OR FALSE 13. Consider the WACC formula, there are three methods for estimat
ID: 1175602 • Letter: T
Question
TRUE OR FALSE
13. Consider the WACC formula, there are three methods for estimating the cost of common stock from retained earnings: 1) the CAPM method, 2) the DCF method, and 3) the preferred stock-yield-plus-risk-premium method.
12.The cost of preferred stock is not considered when calculating the Weighted Average Cost of Capital.
11.In the Weighted Average Cost of Capital formula, the after-tax cost of debt is equal to one minus the marginal tax rate multiplied by the interest rate on new debt.
10. Consider the WACC formula, if the required rate of return on preferred stock increases, holding all else equal, the WACC increases.
Explanation / Answer
13) cost of equity or common stock can be calculated by either of three option. True
12)cost of equity preference stock and cost of debt is considered when Calculating WACC. False
11)COST OF DEBT =Interest (1-tax rate) True
10)As the required rate of return is increses the cost of Preferred stock also increses. True
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