Exam 13: Risk, cost of Capital, and Valuation

Consolidated Transfer is an all-equity financed firm.The beta is .75,the market risk premium is 7.78 percent,and the risk-free rate is 3.84 percent.What is the expected rate of return on this stock?

HNT is an all-equity firm with a beta of .88.What will the firm's equity beta be if the firm switches to a debt-equity ratio of .35?

The cost of preferred stock:

Which one of these statements related to beta is correct?

BG's cost of equity is 9.4 percent,the expected return on the market is 13.6 percent,and the risk-free rate is 3.8 percent.What is the firm's debt-equity ratio if its asset beta is .36? Assume there is no preferred stock.

A firm's net cash flow is calculated as:

What is the cost of equity for a firm that has a beta of 1.2 if the risk-free rate of return is 2.9 percent and the expected market return is 11.4 percent?

A firm with high operating leverage has:

As of 2018,U.S.tax law limits the tax deduction for interest payments to 30 percent of:

The CAPM has an advantage over DDM because the CAPM:

When calculating the weighted average flotation cost,the weights should be based on the:

Barges has an asset beta of .57,the risk-free rate is 4.3 percent,and the market risk premium is 7.7 percent.What is the equity beta if the firm has a debt-equity ratio of .56?

Assume a levered firm plans to raise new capital to finance a project.To properly account for the flotation costs,the firm should:

Which one of these statements is correct concerning the CAPM?

If a firm increases its use of both operating and financial leverage,then you should expect the firm's:

Norris Co.has developed an improved version of its most popular product.To get this improvement to the market will cost $48 million but the project will return an additional $13.5 million for 5 years in net cash flows.The firm's debt-equity ratio is .25,the cost of equity is 13 percent,the pretax cost of debt is 9 percent,and the tax rate is 21 percent.All interest is tax deductible.What is the net present value of this proposed project?

LR Engines stock is selling for $42.39 a share,has an ROE of 14.3 percent,and a dividend payout ratio of 35 percent.The next expected dividend is $1.62 a share.What is the cost of equity for this firm?

Peter's Audio has a yield to maturity on its debt of 7.8 percent,a cost of equity of 12.4 percent,and a cost of preferred stock of 8 percent.The firm has 105 shares of common stock outstanding at a market price of $22 a share.There are 25 shares of preferred stock outstanding at a market price of $45 a share.The bond issue has a total face value of $1,500 and sells at 98 percent of face value.If the tax rate is 21 percent,what is the weighted average cost of capital assuming all interest is tax deductible?

The use of leverage:

When valuing a firm financed with debt and equity,the individual cash flows should be discounted using: