Unit 2: Sources of Finance and Cost of Capital - Practice Quiz

1 Which of the following is strictly a short-term source of finance?

2 Financial leases are classified as which type of source of finance based on duration?

3 In the context of sources of finance, what does ADR stand for?

4 Which of the following is an internal source of long-term finance?

5 Commercial Paper (CP) is an unsecured money market instrument issued in the form of:

6 The Cost of Capital is best defined as:

7 Which component of capital structure usually has the lowest cost due to tax deductibility?

8 The formula for the Cost of Irredeemable Debt () after tax is:

9 If a company issues 10% debentures of $100,000 at par and the tax rate is 30%, what is the after-tax cost of debt?

10 Which of the following creates a 'Tax Shield'?

11 The cost of preference share capital () is generally calculated as:

12 Which of the following statements regarding the Cost of Equity () is TRUE?

13 In the Dividend Price Approach (constant dividend), the Cost of Equity () is:

14 Under the Dividend Growth Model (Gordon's Model), the formula for Cost of Equity is:

15 In the formula , what does represent?

16 The Capital Asset Pricing Model (CAPM) calculates the cost of equity based on:

17 According to CAPM, the formula for Cost of Equity is:

18 What does 'Beta' () measure in the CAPM model?

19 The Cost of Retained Earnings () is usually considered equal to:

20 Why is the Cost of New Equity () typically higher than the Cost of Retained Earnings ()?

21 WACC stands for:

22 To calculate WACC, the specific costs of each source of finance are weighted by their:

23 Which weights are generally preferred for calculating WACC?

24 Factoring is a method of raising short-term finance against:

25 Which of the following is NOT a component of Cost of Capital?

26 If , , and , what is using CAPM?

27 Venture Capital is best described as:

28 In the calculation of Cost of Redeemable Debt, the term 'Redemption Value' refers to:

29 Which source of finance does not dilute the control of existing shareholders?

30 A Global Depository Receipt (GDR) is usually issued in:

31 The approximate formula for Cost of Redeemable Debt involves averaging:

32 For a profit-making company, the 'Effective Cost' of debt is:

33 If the current market price of a share is $50 and the expected dividend is $5 with no growth, the Cost of Equity is:

34 The 'Realized Yield Approach' for calculating Cost of Equity is based on:

35 When calculating WACC, if the capital structure changes, what happens?

36 Term loans provided by financial institutions are typically for:

37 What is the primary difference between 'Cum-dividend' and 'Ex-dividend' price when calculating Cost of Equity?

38 In the WACC calculation , what does represent?

39 Which of the following creates a 'Fixed Financial Charge' for a company?

40 If a company has a Beta of 0, its expected return should theoretically equal:

41 Lease financing where the lessor maintains the asset and the lease is short-term is called:

42 The marginal cost of capital is:

43 Which of the following is a feature of Preference Shares?

44 The explicit cost of Retained Earnings is zero. This statement is:

45 If flotation costs are 5%, and the market price of a share is NP$) used in the $K_e$ calculation for new shares?

46 A bond that is issued at a deep discount and pays no interest during its life is called a:

47 In the context of WACC, as the Debt-to-Equity ratio increases significantly, the Cost of Equity () typically:

48 What is 'Ploughing Back of Profits'?

49 Which of the following is considered a 'hybrid' security?

50 The primary significance of calculating the Weighted Average Cost of Capital (WACC) is to: