1)

Company X tells a major pension fund that it is selling 1 new share of stock for every 5 shares outstanding now. The pension fund must buy in to maintain its percent of total shares. This is called a(n):

A. Proxy fight

B. Initial public offering

C. Preemptive right

D. Return on common equity

2)

Gallegos evaluates a major investment. They determine the IRR of the project is 60% as compared to a 20% discount rate they used to evaluate the project. This means the project would:

A. Earn a 60% total return to all company investors

B. Earn an 80% total return to the company itself

C. Earn a 40% return above weighted cost of capital

D. Earn a -40% total return to company stockholders

3)

Which is true about the security market line / CAPM formula?

A. The stock market overall has a beta of 0.

B. US Treasury investments have a beta of 1.

C. More diversification increases the overall beta.

D. Lower beta of a stock means less risk to the investor.

4)

The dividend discount model assumes all of these except:

A. A constant dividend growth rate

B. The market risk premium impacts cash flows

C. The stock return is greater than the dividend growth rate

D. Next year's dividend matters

5)

Max Co. is evaluating an investment proposal to offer a new model of its main product. The project will cost $300,000 today, and it is expected to produce after-tax cash flows of $90,000, $120,000 and $210,000 over the next three years. If Max Co. has a WACC of 15%, what is the NPV of this investment?

6)

Investors are looking at Max Co. common stock. Right now it sells for $60 per share, and it pays a $2.40 dividend, which is expected to grow 10% per year. What return are investors earning on Max Co. common stock?