16. The before-tax cost of debt, rd, is the same as the A.dividend yield associated with the fim's common stock. B.average coupon rate of the firm's bonds. C.average yield to maturity (YTM) associated with the firm's bonds. D.re if the firm has no preferred stock. E.the firm's marginal tax rate: 17. Stock A has a beta of 1.5 and Stock B has a beta of 0.5. Which of the following statements must be true about these securities? (Assume the market is in equilibrium.) A.Stock B would be a more desirable addition to a portfolio than Stock A. B.Stock A would be a more desirable addition to a portfolio than Stock B. C.When held in isolation, Stock A has greater risk than Stock B. D. The required return on Stock B will be greater than that on Stock A. E. The required return on Stock A will be greater than that on Stock B. 18. The internal rate of return of a capital investment A.Is similar to the yield to maturity bond. B.Changes when the required rate of return changes. C.Is equal to the annual net cash flows divided by one half of the project's cost when the cash flows annuity. D.None of these 19. Which of the following statements is correct? A.If the calculated beta underestimates the firm's true investment risk, then the CAPM method wi overestimate ks. B. Beta measures market risk, but if a firm's stockholders are not well diversified, beta may not a measure the firm's total risk. C. The discounted cash flow method of estimating the cost of equity can't be used unless the gro component, g, is constant during the analysis period. D.An advantage shared by both the DCF and CAPM methods of estimating the cost of equity they yield precise estimates and require little or no judgment. 20. Choose the correct answer for the following: (1) Which is the best measure of risk for choosir which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as diversified portfolio? A.Coefficient of variation; beta. B. Variance; correlation coefficient. C.Beta; variance. D.Beta; beta. E.Standard deviation; correlation coefficient. 21. The firm's target capital structure is consistent with which of the following? A.Minimum risk. B. Minimum cost of equity (ks). C.Maximum earnings per share. D. Minimum cost of debt (kd). E.Minimum weighted average cost of capital. 22. The portion of the firm's earnings that has been reinvested in the firm rather than paid called A.gross margin. B.reinvestment return. C.retained earnings. D.net inc 23. If the NPV form a project is positive it must be that A. the internal rate of return is lower than the discount used. B.accepting the project increases the value of the firm. C.the project is not acceptable on a risk adjusted basis. D.the discounted payback period is longer than the useful life of the project. E.this project is preferred to any other mutually exclusive project. 24. If the risk-free rate is 7 percent, the expected return on the market is 10 percent, Security J is 13 percent, what is the beta of Security J? A. 1.0 B. 2.0 C. 3.0 D. 2
