The common stock of a company must provide a higher expected return than the debt of the same company because

Related MCQs

• Consider the below mentioned statements: 1. A debt-equity ratio of 2:1 indicates that for every 1 unit of equity, the company can raise 2 units of debt. 2. The cost of floating a debt is greater than the cost of floating an equity issue. State True or False:
• If risk free rate of return is 8%, Return on market portfolio is 12%, beta = 1.5, then the expected rate of return according to CAPM is equal to
• If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is the Weighted Average Cost of Capital (WACC)?
• ----- is the rate of return that the company must earn on the net funds raised, in order to satisfy the equity shareholders’ demand for return
• Lei-Feng, Inc.'s $100 par value preferred stock just paid its $10 per share annual dividend. The preferred stock has a current market price of $96 a share. The firm's marginal tax rate (combined federal and state) is 40 percent, and the firm plans to maintain its current capital structure relationship into the future. The component cost of preferred stock to Lei-Feng, Inc. would be closest to .
• Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:
• In case of Net Income Approach, when the debt proportion is increased, the cost of debt:
• Debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
• You are considering two mutually exclusive investment proposals, project A and project B. B's expected value of net present value is $1,000 less than that for A and A has less dispersion. On the basis of risk and return, you would say that
• Equity shares of phonex Ltd are quoted in the market at Rs17. The dividend expected a year hence is Rs1.50. The expected rate of dividend growth is 8%. The cost of equity capital to the company is