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99) If a bond has a market value that in higher than its par vakre, then the required retum on the bond must be less than the band's coupon rate. 99) 100) Preferred stock is rakter than long-term debt because its claim on asets and income come after those of bends. 100) 101) Common stock valuation can be based on the present value of future dividends or alternatively on the present value of the firm's future quarterly net income. 101) 102) 1f a firm were to earn exactly its cost of capital, we would expect the price of its common stock to remain unchanged. 102) 103) The market value weights are preferred when calculating a firm's welghted average cost of capital. 103) 1684) A corporation may lower its cost of capital by shifting a portion of its total financing from a higher cost source of sapital, such as common equity, to a lower cost source of capital, such as debt 106 105) Many firms today continue to use the payback method but also employ the NPV or IRR methods, especially when large projects are being analyzed 105) 106) 106) Junk bands are also called high-yield bonds 167) If a bond sells for its par value, the coupon interest rate and yield to maturity are equal. 107) 195) If the expected growth rate for dividends in zero then the value of common stock will be equal to the current dividend 105) 109) If the before-tax cost of debt 1a 7% and the firm has a 40% marginal tax rate the after-tax cost of debt is 2.8%. 109) 110) Because the NPV and Pt methods both yield the same acept/reject decision, a company attempting to rank capital budgeting projects for funding consideration can use either method and get the same results. 110) 111) A typical decision rule used in simulation is to accept the project if the probability is sufficiently high that the net present value is positive 111) 112) A bond that matures in 5 years has les interest rate risk than a bond that maturex in 25 years because regardless of changes in interest rates , the band can be redeemed for face value 20 years earlier 112) 113) Calculating the cost of capital for divisions within a company is not recommended because the data is to fragmented and all divisions are part of the same company in any case. 113)

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