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Chapter 13 - The cost of capital Multiple Choice 31. Companies have no way to directly estimate the discount rate that reflects the risk of a. a publicly traded security. b. its debt securities. *c. the incremental cash flows from a particular project. d. none of the above. 32. A company's overall cost of capital is a. equal to its cost debt. *b. a weighted average of the costs of capital for the collection of individual projects that the company is working on. c. best measured by the cost of capital of the riskiest projects that the company is working on. d. none of the above. 33. The finance balance sheet is *a. the same as the accounting balance sheet, but it is based on market values. b. the same as the accounting balance sheet, but it does not have to balance. c. based on cash rather than accrual accounting. d. profit. 34. The value of the cash flows that the assets of the company are expected to generate must equal *a. the value of the cash flows claimed by the equity investors. b. the value of the cash flows claimed by the debt investors. c. the value of the cash flows claimed by both the equity and debt investors. d. the revenue produced by the company. 35. The beta for a company can be estimated by a. adding up the betas of the individual projects of the company. *b. taking the weighted average of the beta for the individual projects of the company. c. taking the simple average of the beta for the individual projects of the company. d. None of the above. 13.2 36. The company can be viewed as *a. a portfolio of individual projects, each with their own risks, cost of capital, and returns. b. a collection of equity shares comprising it. c. a collection of debt instruments financing it. d. none of the above. 37. In order for a company to estimate its cost of debt capital by observing the price of its debt instruments, *a. the company must depend on markets being reasonably efficient. b. the debt must be privately held. c. the beta of the debt must be greater than the beta of the company's equity. d. None of the above. 38. If markets are not reasonably efficient, then *a. the estimates of expected returns are not needed. b. the need for a discount rate to analyse project cash flows is not needed. c. estimates of expected returns that were based on security prices will not be reliable. d. none of the above. 39. When estimating the cost of debt capital for the company, we are primarily interested in a. the cost of short-term debt. *b. the cost of long-term debt. c. the coupon rate of the debt. d. none of the above. 40. Long-term debt typically describes a. debt with a maturity greater than one year. b. only coupon debt. *c. publicly traded debt. d. none of the above.... View Full Document

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