1. The SML approach to valuing a stock has several advantages when compared to the dividend cash flow model that include:

A) adjusting for risk

B) SML can be used even if a firm does not pay a dividend

C) market risk premium is easier to estimate than dividends

D) A and B

E) all the above

2. The total return of a stock consists of:

a) Capital gains yield and growth rate

b) Capital gains yield and dividend yield

c) Dividend cash flows only

d) None of the above

3. Ultimately, the value of a firm is determined by:

a) Retained earnings

b) Earnings per share

c) Market investors

d) None of the above

4. The cost of capital is also equivalent to:

a) The required return

b) The discount rate

c) The opportunity cost

d) The hurdle rate

e) All the above

5. In making strategic capital budgeting decisions, which contingency is normally not considered as part of the planning process:

a) The option to expand

b) The option to abandon

c) The option to wait

d) None of the above, all are viable options