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Multiple-choice questions: 1. In the constant-grow...




Multiple-choice questions: 1. In the constant-growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus: A. Yield-to-maturity B. Cost of Capital C. Present Value Yield D. Price appreciation yield 2.In the valuation of common stock, the simple annuity and perpetuity formulas used in the valuation of bonds and preferred stock are not generally applicable because: A.Investors buy common stock for much different reasons than they buy bonds or preferred stock. B. Returns accruing to common stock should never be capitalized (discounted) in order to determine a price. C. Unlike bonds and preferred stock, common-stock is a short term investment. D. Common stock dividends are normally expected to grow over time, rather than being constant as are payments on most bonds and most preferred stock. 3.Beta is defined as: A. a measure of volatility of a security's returns relative to the returns of a broad-based market portfolio of securities. B. the ratio of the variance of market returns to the covariance of returns on a security with the market C. the inverse of the slope of the security regression line D. all of the above 4.Business risk is influenced by all the following factors except: A.variability in interest expenses B.variability in sales C.diversity of its product line D.choice of production technology 5.The disadvantages of the payback approach include: A. cash flows after the payback period are ignored in the calculation B. payback ignores the time value of money C. payback fails to provide an objective decision-making criterion D. all of the above 6. The net present value method assumes that the cash flows over the life of the project are reinvested at A. the computed internal rate of return B. the risk-free rate C. the market capitalization rate D. the firm's cost of capital 7. For a company that is not planning to change its target capital structure, the proportions of debt and equity used in calculating the weighted cost of capital should be based on the current _______ weights of the individual components. A. book value B. market value C. replacement value D. accounting value 8. The risk-adjusted discount rate approach is preferable to the weighted cost of capital approach when A. all projects have the same risk characteristics B. the risk-free rate is known with certainty C. the projects under consideration have different risk characteristics D. the firm is unlevered 9. Ajax Corp. common stock has a beta of 2. The risk-free rate is 4 percent and the expected market rate of return is 8 percent. Determine the required rate of return on the security. A. 8% B. 12% C. 14% D. 20%,Thanks


Paper#6826 | Written in 18-Jul-2015

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