Question
Vincents Dance Studio, Inc., has a beta of 1.9. The risk-free rate of interest is 4 percent. The market portfolio has an expected rate of
Vincents Dance Studio, Inc., has a beta of 1.9. The risk-free rate of interest is 4 percent. The market portfolio has an expected rate of return of 10 percent. What is the cost of internal equity, ks, for this company using the CAPM approach?
a.
15.4%
b.
13.6%
c.
14%
d.
17.5%
Which is of the following are drawbacks of the risk-adjusted discount rate method?
a.
There is a no high level of arbitrariness in the selection of risk premiums.
b.
Risk perception is inevitably susceptible to personal bias.
c.
It is extremely easy to allocate projects to risk classes.
d.
Investors tend to consider risk of less importance than project managers.
Which statements best describe the costs of equity when compared with the cost of debt capital.
a.
Debt finance can be less expensive for companies.
b.
Investing via debt finance is riskier for investors.
c.
Investing via equity finance is less risky for investors.
d.
Equity finance is less expensive for companies.
Firm A borrows $20,000 at 5% and invests in machine with a useful life of 5 years. The Machine generates additional revenues of $10,000/year and additional cost of $2,000/year. Firm As tax rate is 30%. The payback period is.
a.
3.27 years
b.
2.27 years
c.
4.27 years
d.
5 years
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