Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. The cost of retained earnings is separately calculated.
   2. The dividend on preference shares is adjusted for taxes to arrive at their cost.
   3. Beta of less than one lowers the cost of equity shares.
   4. Marginal cost of capital is always equal to the average cost of capital.
   5. The cost of a share is higher if it sells at premium.
   6. The interest rate on debentures may be the basis for ascertaining the cost of equity shares.
2. Choose the most suitable answer.
   1. Cost of new debt incorporates:
      1. floatation cost
      2. no floatation cost
      3. only a part of floatation cost
   2. Cost of preference shares is:
      1. treated for taxes
      2. not treated for taxes
      3. only occasionally treated for taxes
   3. Cost of equity shares is influenced by:
      1. growth ...