HOMEWORK 6

# HOMEWORK 6 - HOMEWORK 6 1 The market value of Charter...

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Picture 1 Picture 2 Picture 3 Picture 4 Picture 5 Picture 15 Picture 16 Picture 17 Picture 18 Picture 19 Picture 20 Picture 31 Picture 32 Picture 33 Picture 34 HOMEWORK 6 1) The market value of Charter Cruise Company's equity is 10 million USD, and the market value of its risk-free debt is 6 million USD. If the required rate of return on the equity is 0.15 and that on the debt is 0.08, calculate the company's cost of capital. (Assume no taxes.) 2) The market value of Charter Cruise Company's equity is 80 million USD, and the market value of its risk-free debt is 12 million USD. If the required rate of return on the equity is 0.1 and that on the debt is 0.04, calculate the company's cost of capital. (Assume no taxes.) 3) Cost of capital is the same as cost of equity for firms: Financed entirely by bonds All of the other answers Financed by both debt and equity Finance entirely with risk-free securities Financed entirely by debt Financed entirely by equity 4) 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 accepting projects with average risk I and II III only I II and III I only II and III I and III II only 5) The historical returns data for the past three years for Stock B and the stock market portfolio are: Stock B: 24%, 0%, 24%, Market Portfolio: 10%, 12%, 20%.

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