Exam 12: Risk, cost of Capital, AMCQ Valuation

Metal Roofs has an equity beta of 1.47,a capital structure with three parts of debt for every five parts of equity,and a zero tax rate.What is its asset beta?

Alaskan Markets has a target capital structure of 40 percent debt and 60 percent equity.The pretax cost of debt is 6.3 percent,the tax rate is 35 percent,and the cost of equity is 14.6 percent.The firm is considering a project that is equally as risky as the overall firm.The project has an initial cash outflow of $1.92 million and annual cash inflows of $562,000 at the end of each year for 4 years.What is the NPV of the project?

A stock portfolio consists of 27 percent Stock A,38 percent Stock B,and the remainder is invested in Stock C.The security betas are 1.09,0.84,and 1.33 for Stocks A,B,and C,respectively.What is the portfolio beta?

ABC stock has a beta that is 13 percent higher than the overall market beta.The risk-free rate is 3.1 percent,and the market rate of return is 10.6 percent.What is the company's cost of equity?

A portfolio is invested 40 percent each in Stock L with a beta of 1.48 and Stock K with a beta of 1.05.The remainder of the portfolio is invested in secured debt.What is the portfolio beta?

Which one of these is represented by the slope of the characteristic line?

Which one of these statements is true?

If you assume beta is greater than 1,then which of these will increase the cost of equity capital according to CAPM? I.Increase in the risk-free rate II)Decrease in the risk-free rate III)Increase in the market rate of return IV)Decrease in the market rate of return

Which one of these statements related to beta is correct?

JJ's Ice Cream has 1,800 bonds outstanding that are selling for $1,015 each,mature in 11 years,and have an aftertax rate of return of 6.2 percent.There are 45,000 shares of common stock outstanding with a market price of $50 a share.The next annual dividend will be $2.40 per share with annual increases thereafter of 2.5 percent.The risk-free rate is 4 percent,the market risk premium is 7 percent,and the tax rate is 35 percent.What is the company's WACC?

Finally There! has 1,500 bonds outstanding with a $1,000 par value,a yield to maturity of 6.4 percent,and a market price of $989 each.The firm also has 74,000 shares of common stock outstanding at a price per share of $35 and a beta of 1.08.The risk-free rate is 2 percent,the market risk premium is 7 percent,and the tax rate is 34 percent.What is the company's WACC?

Golden Eagle has 1,250 bonds outstanding with a market value of $980 each.The pretax cost of debt is 7.2 percent.The firm also has 46,000 shares of common stock outstanding at a price per share of $32 and a beta of 1.21.The risk-free rate is 2.4 percent,the market risk premium is 7.3 percent,and the tax rate is 34 percent.What is the company's WACC?

The asset beta is defined as the beta of

Winter's prefers to finance its capital spending with 35 percent debt,25 percent internal equity,and 40 percent external equity.The floatation cost of debt is 5.2 percent while it is 9.1 percent for equity.What is the weighted average flotation cost?

When the CAPM is used to estimate the cost of equity capital,the expected excess market return is equal to

A firm with high operating leverage is best defined as a firm that has

Which one of these is a commonly used multiple for overall company valuation?

The beta of a firm is more likely to be high under which two conditions?

Delta Foods is an unlevered firm that is equally as risky as the market.U.S.Treasury bills are yielding 2.4 percent,and the market rate of return is 8.1 percent.What discount rate should be assigned to a project that has the same risks as Delta Foods?

Which of these may occur if a company uses its overall cost of capital as the discount rate for all projects? I.Profitable low-risk projects may be incorrectly rejected. II)Only projects with risks similar to the current company will be accepted. III)Too many high-risk projects may be accepted. IV)Only low-risk projects will be accepted.