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Question;1. The;company cost of capital is the appropriate discount rate for a firm's: a. Low risk;projects b. High risk;projects C. Average-risk projectsd. All of;the above 2. Cost of;capital is the same as cost of equity for firms: a. Financed;entirely by debt b. Financed;by both debt and equity C. Financed entirely by equityd. None of;the above 3. The cost;of capital for a project depends on: a. The;company's cost of capital B. The use to which the capital is put, i.e. the projectc. The;industry cost of capital d. All of;the above 4. Using the;company cost of capital to evaluate a project is: I) Always correct II) Always;incorrect III) Correct for projects that are about as risky as the average of;the firm's other assets a. I only b. II only C. III onlyd. I and III;only 5. If a firm;uses the same company cost of capital for evaluating all projects, which of the;following is likely? I) Rejecting good low risk projects II) Accepting poor;high risk projects III) Correctly accept projects with average risk a. I only b. I and II;only C. I, II, and IIId. II only 6. If firms;use the company cost of capital for evaluating all of their projects, which of;the following is likely? I) Accepting poor low risk projects II) Rejecting good;high risk projects III) Correctly accept projects with average risk a. I only b. II only C. III only d. I, II and III66 Junjie Liu ? Econ 282 Practice;Multiple Choice7. Which of;the following types of projects have the highest risk? A. Speculation ventures b. New;products c. Expansion;of existing business d. Cost;improvement, (known technology) 8. A firm;might categorize its projects into: I) Cost improvement projects II) Expansion;projects (existing business) III) New products projects IV) Speculative;ventures a. III only b. I, II and;III only c. II and;IV only D. I, II, III, and IV9. Which of;the following type of projects has the lowest risk? a. Speculation;ventures b. New;products c. Expansion;of existing business D. Cost improvement10. Which of;the following type of projects has average risk? a. Speculation;ventures b. New;products C. Expansion of existing businessd. Cost;improvement 11. The market;value of Charter Cruise Company's equity is $15 million, and the market value;of its risk-free debt is $5 million. If the required rate of return on the;equity is 20% and that on the debt is 8%, calculate the company's cost of;capital. (Assume no taxes.) a. 20% B. 17%c. 14% d. None of;the above 12. The market;value of Cable Company's equity is $60 million, and the market value of its;risk-free debt is $40 million. If the required rate of return on the equity is;15% and that on the debt is 5%, calculate the company's cost of capital.;(Assume no taxes.) a. 5% b. 0% C. 1%d. One of the above67 Junjie Liu ? Econ 282 Practice;Multiple Choice13. The;company cost of capital when debt as well as equity is used for financing is: a. Cost of;debt b. Cost of;equity C. The weighted average cost of capital (WACC)d. None of;the above 14. The;after-tax weighted average cost of capital (WACC) is calculated using the;formula: a. WACC =;(rD) (D/V) + (rE) (E/V) where: V = D + E B. WACC = (rD) (1 - TC) (D/V) + (rE) (E/V) where: V = D + Ec. WACC =;(rD) (D/E) + (rE) (E/D) d. None of;the above 15. The market;value of Charcoal Corporation's common stock is $20 million, and the market;value of its risk-free debt is $5 million. The beta of the company's common;stock is 1.25, and the market risk premium is 8%. If the Treasury bill rate is;5%, what is the company's cost of capital? (Assume no taxes.) a. 5% b. 4.6% C. 3%d. One of;the above 16. The market;value of XYZ Corporation's common stock is 40 million and the market value of;the risk-free debt is 60 million. The beta of the company's common stock is;0.8, and the expected market risk premium is 10%. If the Treasury bill rate is;6%, what is the firm's cost of capital? (Assume no taxes.) A. 9.2% b. 14% c. 8 1%;d. None of;the above;="msonormal">

 

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