Question
Assuming that the expected market return is 11% and the risk-free rate of return is 8%, the cost of equity of a company which is
Assuming that the expected market return is 11% and the risk-free rate of return is 8%, the cost of equity of a company which is 40% debt financed with a beta of 0.8 will be closest to:
Select one:
a. 6.24%
b. 12.16%
c. 10.4%
d. 4.16%
Assume that a company is 30% debt and 70% equity financed. The company has a 12% cost of equity and 9.5% after-tax cost of debt. It considers undertaking a project which has a life of 8 years. If the cash flows of the project are, on the average, spread evenly over the life of the project, the optimal cutoff period is closest to:
Select one:
a. 5.1 years
b. 6.1 years
c. 4.2 years
d. 3.9 years
Calculate the profitability index for the below projects and indicate your order of choices.
Project | Present Value | Investment |
A | $145,000 | $95,000 |
B | $135,000 | $80,000 |
C | $175,000 | $110,000 |
Select one:
a. B, A and C
b. B, C and A
c. C, B and A
d. A, C and B
proposes an optimal capital structure.
Select one:
a. Traditional Approach
b. Operating Net Income Approach
c. Modigliani and Miller Theorem with taxes
d. Pecking Order Theory
Suppose that a machine with an expected life of 6 years costs $50,000. If the machine has an operating expense of $4,500 each year and the opportunity cost of capital is 10%, the equivalent annual cost is closest to:
Select one:
a. $4,500
b. $16,000
c. $9,000
d. $12,500
Consider a project with the following cash flows:
C0 | C1 | C2 | C3 | C4 |
-15,000 | 6,000 | 6,000 | 6,000 | 6,000 |
If the appropriate discount rate for this project is 15%, then the NPV is closest to:
Select one:
a. -$2,130
b. $2,130
c. -$1,067
d. $1,067
......................... depicts the reltionship between the total risk of a portfolio as measured by the standard deviation of a portfolios returns, and its expected return.
Select one:
a. Security Market Line
b. Security Characteristic Line
c. None
d. Capital Market Line
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