FIN CH 11 - The CAPM/SML and Discounted Cash Flow...

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Sheet1 Page 1 B - What is capital budgeting? a. The process of managing cash flow. b. The analysis of real asset investment opportunities. c. The process of managing current assets. d. None of the above. D - Which of the following would be a reasonable estimate for a company's before-tax cost of debt? a. The coupon rate on the company's existing bonds. b. The interest rate charged on a bank loan that the company received last year. c. The current yield on the company's existing bonds. d. The yield to maturity on the company's existing bonds. B - wrong What is the proper estimate for the cost of preferred stock in estimating a company's WACC? a. The estimated cost of newly issued preferred stock b. The dividend yield on existing preferred stock's par value. c. The historical return on the company's preferred stock. d. None of the above. d A -
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Unformatted text preview: The CAPM/SML and Discounted Cash Flow approaches to estimating the cost of retained earnings will be the same under wh a. The company's common stock price is in equilibrium. b. The company's preferred stock price is in equilibrium. c. The company's common stock is undervalued. B - Which of the following factors that influence WACC are within the corporation's control? a. Market interest rates b. Dividend policy c. Tax rates d. None of the aboved. None of the above. d C - Which of the following should Fortune Brands use as the WACC for an average risk project within its Titliest Golf division? a. Fortune Brands corporate WACC. b. A rate slightly higher than Fortune Brands corporate WACC. c. Titliest Golf's divisional WACC. d. A rate slightly lower than Titliest Golf's divisional WACC. Adjusting WACC...
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This note was uploaded on 05/05/2010 for the course ECONMOICS ECON 203 taught by Professor Josephpetry during the Spring '10 term at University of Illinois, Urbana Champaign.

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