This quiz is a part of the CFA Level 1 reading 'Cost of Capital'. 

Cost of Capital

Positive as equity holders face a lower effective tax rate. 

Positive as equity holders gain the tax shield on the debt interest.

Negative because of the increased risk of default and fewer shares outstanding. 

Minimizes the ﬁrm’s cost of debt capital.

Is that combination of debt, preferred and common stock that maximizes the ﬁrm’s share value.

Is one in which the weighted cost of capital is less than the IRR.

The interest rate that must be paid on the debt.

The after-tax interest rate that must be paid on the debt.

The future value of the debt less principal.

Incorporate flotation costs directly into the cost of capital by increasing cost of external equity

Increase the project's initial cash outflow by the flotation cost attributable to the project

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