The cost of equity for a firm is: A) determined by directly observing the rate of return required by equity investors. B) based on estimates derived from financial models. C) equivalent to a leveraged firm’s cost of capital. D) equal to the risk-free rate of return plus the market risk premium. E) equal to the […]
Date: September 19th, 2020
The standard deduction is indexed to inflation. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The modified internal rate of return corrects which problem inherent in IRR? A) Adjustments for scale differences B) Difficulty in ranking projects C) Differing risk attributes of projects D) Incorporates the time value of money E) It allows for reinvestment of cash inflows from the project at the firm’s cost of capital. ANSWER […]
Date: September 19th, 2020
A project costs $1,000 today and is expected to produce cash inflows of $800 at the end of each of the next two years. If the firm’s cost of capital is 10%, what is the modified internal rate of return? Round answer to the nearest whole percent. A) 30% B) 23% C) 13% D) 21% […]
Date: September 19th, 2020
You will buy a lottery ticket. If you win, you have a choice of receiving $995,000 now or three equal end-of-year payments of $400,000. You should take the payments A) because $1,200,000 is greater than $995,000. B) if you earn 20% or more on your investments. C) if you earn 11% or more on your […]
Date: September 19th, 2020
An ordinary annuity assumes ________-of-period payments, while an annuity due assumes ________-of-period payments. A) end; beginning B) beginning; end C) end; middle D) beginning; middle ANSWER A
Date: September 19th, 2020
A tax credit has the effect of reducing your taxable income by the amount of the credit. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The Barby Division at Mattel Toys is considering the acquisition of a laser tattoo applicator that will be able to add custom-designed tattoos to the Barby doll. The machine costs $300M. The addition of tattoos to the iconic toy is expected to increase demand and raise free cash flow by $90 million over the next […]
Date: September 19th, 2020
A firm’s pre-tax cost of debt is 10%. If the firm is of average risk, what is the cost of equity using the bond yield plus premium approach? A) 15% B) 13% C) 14% D) 10% E) 11% ANSWER C
Date: September 19th, 2020
A periodic rate cap limits adjustable-rate movements over only a single adjustment period. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
