Question
1) Which of the following statements is correct? a.A relatively risky future cash outflow should be evaluated using a relatively high discount rate. b.If a
1) Which of the following statements is correct?
a.A relatively risky future cash outflow should be evaluated using a relatively high discount rate.
b.If a firm's managers want to maximize the value of the stock, they should concentrate exclusively on the projects' market, or beta, risk.
c.If a firm evaluates all projects using the same required rate of return to determine NPVs, then the riskiness of the firm as measured by its beta will probably decline over time.
d.If a firm has a beta that is less than 1.0, say 0.9, this would suggest that its assets' returns are negatively correlated with the returns of most other firms' assets.
e.Project risk estimation is independent of the beta coefficient.
2) Which of the following statements is true of marginal cost of capital?
a.All else equal, an increase in the tax rate would decrease the marginal cost of debt capital.
b.All else equal, an increase in a company's stock price will increase the marginal cost of retained earnings.
c.All else equal, an increase in a company's stock price will increase the marginal cost of issuing new common equity.
d.All else equal, an increase in the capital raised in a period will decrease the marginal cost of debt capital.
e.All else equal, an increase in the weighted cost of capital will decrease the marginal cost of retained capital.
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