Chapter 13 Risk, Cost of Capital, and Capital Budgeting Answer Key
选课走班
Multiple Choice Questions
1. The weighted average of the firm's costs of equity, preferred stock, and after tax debt is the:
A. reward to risk ratio for the firm.
B. expected capital gains yield for the stock.
C. expected capital gains yield for the firm.
D. portfolio beta for the firm.
E. weighted average cost of capital (WACC).
Difficulty level: Easy
Topic: WACC
Type: DEFINITIONS
2. If the CAPM is ud to estimate the cost of equity capital, the expected excess market return is equal to the:
A. return on the stock minus the risk-free rate.
B. difference between the return on the market and the risk-free rate.
C. beta times the market risk premium.
D. beta times the risk-free rate.
E. market rate of return.
Difficulty level: Easy
棉去掉木是什么字Topic: CAPM
Type: DEFINITIONS
3. The best fit line of a pairwi plot of the returns of the curity against the market index returns is called the:
A. Security Market Line.
B. Capital Market Line.
C. characteristic line.
D. risk line.
E. None of the above.
Difficulty level: Medium
Topic: CHARACTERISTIC LINE
Type: DEFINITIONS
4. The u of debt is called:
A. operating leverage.
B. production leverage.
C. financial leverage.沛公安在
D. total ast turnover risk.
E. business risk.
Difficulty level: Medium
Topic: USE OF DEBT
Type: DEFINITIONS
5. The weighted average cost of capital for a firm is the:
A. discount rate which the firm should apply to all of the projects it undertakes.
B. overall rate which the firm must earn on its existing asts to maintain the value of its stock.
C. rate the firm should expect to pay on its next bond issue.
D. maximum rate which the firm should require on any projects it undertakes.
E. rate of return that the firm's preferred stockholders should expect to earn over the long term.
Difficulty level: Medium
Topic: WEIGHTED AVERAGE COST OF CAPITAL
Type: DEFINITIONS
6. The WACC is ud to _______ the expected cash flows when the firm has ____________.
rom是什么A. discount; debt and equity in the capital structure
B. discount; short term financing on the balance sheet
C. increa; debt and equity in the capital structure
D. decrea; short term financing on the balance sheet
E. None of the above.
Difficulty level: Medium
Topic: WACC
Type: CONCEPTS
7. Using the CAPM to calculate the cost of capital for a risky project assumes that:
A. using the firm's beta is the same measure of risk as the project.
B. the firm is all-equity financed.
C. the financial risk is equal to business risk.
D. Both A and B.
E. Both A and C.
先进单位事迹材料
Difficulty level: Medium
Topic: CAPM
Type: CONCEPTS
8. The u of WACC to lect investments is acceptable when the:
A. correlation of all new projects are equal.
B. NPV is positive when discounted by the WACC.
C. risk of the projects are equal to the risk of the firm.
D. firm is well diversified and the unsystematic risk is negligible.
E. None of the above.
Difficulty level: Easy
Topic: WACC
Type: CONCEPTS
申时五行属什么9. If the risk of an investment project is different than the firm's risk then:
A. you must adjust the discount rate for the project bad on the firm's risk.
B. you must adjust the discount rate for the project bad on the project risk.
C. you must exerci risk aversion and u the market rate.
D. an average rate across prior projects is acceptable becau estimates contain errors.
E. one must have the actual data to determine any differences in the calculations.
Difficulty level: Easy
Topic: DISCOUNT RATE
Type: CONCEPTS
shrunken
10. If the project beta and IRR coordinates plot above the SML the project should be:
A. accepted.
B. rejected.
C. It is impossible to tell.
D. It will depend on the NPV.
E. None of the above.
Difficulty level: Medium
Topic: SECURITY MARKET LINE
Type: CONCEPTS
11. The beta of a curity provides an:
红包能撤回吗
A. estimate of the market risk premium.
B. estimate of the slope of the Capital Market Line.
C. estimate of the slope of the Security Market Line.
D. estimate of the systematic risk of the curity.
E. None of the above.
Difficulty level: Easy
Topic: BETA
Type: CONCEPTS
12. Regression analysis can be ud to estimate:
A. beta.
B. the risk-free rate.
C. standard deviation.
