Cost of Capital: True or FalseOnline version Assess key concepts of cost of capital. by Dr. Ibha Rani 1 The cost of preferred stock equals the dividend per share divided by the net issuing price. Yes No 2 The cost of capital is calculated using only the cost of equity; debt is ignored. Yes No 3 The hurdle rate is the minimum required return for a capital budgeting decision. Yes No 4 The after-tax cost of debt is Rd*(1-Tc). Yes No 5 The CAPM is used to estimate the cost of debt, not the cost of equity. Yes No 6 WACC is fixed and does not change with capital structure or market conditions. Yes No 7 WACC combines the costs of equity, debt, and preferred stock weighted by their market values. Yes No 8 The after-tax cost of debt increases when the corporate tax rate rises. Yes No 9 The cost of capital ignores the risk profile of a project. Yes No 10 The cost of equity can be estimated with CAPM: Re = Rf + beta*(Rm - Rf). Yes No
