Exam 13: Risk, Cost of Capital, and Valuation

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The Hold-n-Trade Co. is an all-equity financed firm. The beta is .9,the market risk premium is 7% and the risk-free rate is 5%. What is the expected return of Hold-n-Trade?

(Multiple Choice)

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Question 21

Phil's Carvings,Inc. wants to have a weighted average cost of capital of 9%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

(Multiple Choice)

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Question 22

Terminal value of a firm is also known as

(Multiple Choice)

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Question 23

Using the CAPM to calculate the cost of capital for a risky project assumes that:

(Multiple Choice)

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Question 24

For the levered firm the equity beta is __________ the asset beta.

(Multiple Choice)

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Question 25

When valuing a firm with debt and equity,the cash flows during the non-constant growth period should be:

(Multiple Choice)

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Question 26

The cost of equity for Ryan Corporation is 8.4%. If the expected return on the market is 10% and the risk-free rate is 5%,then the equity beta is ___.

(Multiple Choice)

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Question 27

Given the sample of returns of the Top Black Asphalt Company and the S&P 500 index,calculate Top Black's covariance and beta.

(Essay)

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Question 28

The following are methods to estimate the market risk premium:

(Multiple Choice)

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Question 29

Assuming the CAPM or one-factor model holds,what is the cost of equity for a firm if the firm's equity has a beta of 1.2,the risk-free rate of return is 4%,the expected return on the market is 10%,and the return to the company's debt is 7%?

(Multiple Choice)

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Question 30

Beta measures depend highly on the:

(Multiple Choice)

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Question 31

If a firm has low fixed costs relative to all other firms in the same industry,a large change in sales volume (either up or down) would have:

(Multiple Choice)

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Question 32

The problem of using the overall firm's beta in discounting projects of different risk is the:

(Multiple Choice)

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Question 33

The cost of equity for Burgess Corporation is 9.4%. If the expected return on the market is 12% and the risk-free rate is 4%,then the equity beta is ___.

(Multiple Choice)

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Question 34

Two stock market based costs of liquidity that affects the cost of capital are the:

(Multiple Choice)

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Question 35

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

(Multiple Choice)

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Question 36

The WACC is used to _ the expected cash flows when the firm has _.

(Multiple Choice)

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Question 37

A firm with cyclical earnings is characterized by:

(Multiple Choice)

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Question 38

Slippery Slope Roof's net cash flows are as follows: After year 3,net cash flows grew at a constant rate of 3%. The weighted average cost of capital is 9%. What is the value of the firm?

(Multiple Choice)

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Question 39

Regression analysis can be used to estimate:

(Multiple Choice)

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Question 40

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Exam 13: Risk, Cost of Capital, and Valuation

The Hold-n-Trade Co. is an all-equity financed firm. The beta is .9,the market risk premium is 7% and the risk-free rate is 5%. What is the expected return of Hold-n-Trade?

Phil's Carvings,Inc. wants to have a weighted average cost of capital of 9%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

Terminal value of a firm is also known as

Using the CAPM to calculate the cost of capital for a risky project assumes that:

For the levered firm the equity beta is __________ the asset beta.

When valuing a firm with debt and equity,the cash flows during the non-constant growth period should be:

The cost of equity for Ryan Corporation is 8.4%. If the expected return on the market is 10% and the risk-free rate is 5%,then the equity beta is ___.

Given the sample of returns of the Top Black Asphalt Company and the S&P 500 index,calculate Top Black's covariance and beta.

The following are methods to estimate the market risk premium:

Assuming the CAPM or one-factor model holds,what is the cost of equity for a firm if the firm's equity has a beta of 1.2,the risk-free rate of return is 4%,the expected return on the market is 10%,and the return to the company's debt is 7%?

Beta measures depend highly on the:

If a firm has low fixed costs relative to all other firms in the same industry,a large change in sales volume (either up or down) would have:

The problem of using the overall firm's beta in discounting projects of different risk is the:

The cost of equity for Burgess Corporation is 9.4%. If the expected return on the market is 12% and the risk-free rate is 4%,then the equity beta is ___.

Two stock market based costs of liquidity that affects the cost of capital are the:

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

The WACC is used to _______ the expected cash flows when the firm has _______.

A firm with cyclical earnings is characterized by:

Slippery Slope Roof's net cash flows are as follows: After year 3,net cash flows grew at a constant rate of 3%. The weighted average cost of capital is 9%. What is the value of the firm?

Regression analysis can be used to estimate:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters

The WACC is used to _ the expected cash flows when the firm has _.