Elway Electronics has debt with a market value of $350,000, preferred stock with a market value of $150,000, and common stock with a market value of $450,000. If debt has a cost of 8%, preferred stock a cost of 10%, common stock a cost of 12%, and the firm has a tax rate of 30%, […]
Date: September 19th, 2020
For estimating NPV, the IRR is the appropriate discount rate to use for an average-risk project. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: For estimating NPV, the WACC is the appropriate discount rate to use for an average-risk project.
Date: September 19th, 2020
If a firm increases its current assets relative to total assets, ________. A) it increases return and reduces risk B) it increases return and increases risk C) it reduces return and reduces risk D) it reduces return and increases risk ANSWER C
Date: September 19th, 2020
Technological advances allow a firm’s earnings to grow over time because they increase the productivity of: a. labor. b. capital. c. both labor and capital. ANSWER C
Date: September 19th, 2020
Use the security market line to determine the required rate of return for the following firm’s stock. The firm has a beta of 1.25, the required return in the market place is 10.50%, the standard deviation of returns for the market portfolio is 25.00%, and the standard deviation of returns for your firm is also […]
Date: September 19th, 2020
The riskiness of a future cash flow is measured by ________ , and these are all components of the SML. A) the firm’s standard deviation, correlation, and the market risk premium B) beta, the market risk premium, and the firm’s standard deviation C) the market risk premium, beta, and correlation D) beta, the market risk […]
Date: September 19th, 2020
Use the dividend growth model to determine the required rate of return for equity. Your firm recently paid a dividend of $2.25 per share, has a recent price of $40.20 per share, and anticipates a growth rate in dividends of 3.00% per year for the foreseeable future. A) 8.76% B) 8.60% C) 8.44% D) There […]
Date: September 19th, 2020
Which of the following is an advantage of the dividend growth approach over the SML in estimating the required return on equity? A) The dividend growth model uses market information but the SML does not. B) Dividend growth is known, whereas estimating beta for the SML is an art form. C) It is easy to […]
Date: September 19th, 2020
Which of the following is a difference between debt and equity capital? A) Debt capital does not require periodic payments, whereas equity capital requires period payments. B) Debt capital requires returns in proportion to profits, whereas equity capital requires a fixed rate of return. C) Debt capital provides a tax shield, whereas equity capital does […]
Date: September 19th, 2020
The most fundamental services that governments provide to firms are: a. the establishment of product and financial markets. b. the regulation of industries. c. the establishment of property rights and the enforcement of legal contracts. d. building infrastructure and monitoring managers. ANSWER D
Date: September 19th, 2020
