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As an alternative to the fixed-rate mortgage, borrowers can often obtain an adjustable rate mortgage which has an initial interest rate below that of fixed-rate loans. Which of the following statements best explains the rate difference
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- The company cost of capital is the return that is expected on a portfolio of the company's: A. existing securities.B. equity securities.C. debt securities.D. proposed securities.
- Which of the following statements regarding profitable and unprofitable growth is FALSE?A firm can increase its growth rate by retaining (and reinvesting) more of its earnings.If the firm retains more earnings, it will be able to pay out less of those earnings, which means that the firm will have to reduce its dividend.If a firm wants to increase its share price, it must cut its dividend and re-invest more of its earningsCutting the firm's dividend to increase investment will raise the stock price if, and only if, the new investments have positive NPV.
- Which of the following statements is CORRECT?a. The WACC as used in capital budgeting will be the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.b. The percentage flotation costs associated with issuing new common equity are typically smaller than the flotation costs for new debt.c. The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.d. The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.e. There is an "opportunity cost" associated with using retained earnings-they are not "free."