The formula sheet is the appendix copied out the back of the book.
These might not be the exact problems, but they are pretty similar and I’d suggest
knowing how to do them.
Given the following information, what is the firm's weighted average cost of capital?
Market value of equity = $30 million; market value of debt = $20 million; cost of equity
= 15%; cost of debt = 9%; equity beta = 1.4; tax rate = 35%.
A)
11.34%
B)
12.60%
C)
12.97%
D)
13.32%
E)
14.08%
Answer: A
Response: 15($30M/50M) + 9(20M/50M)(1.35) = 11.34%
A firm has current liabilities of $700 and current liabilities of $350. Calculate the current
ratio.
A)
0.5
B)
2.0
C)
0.75
D)
0.25
E)
1.5
Answer: B
Response: $700/$350 = 2.0
If the total assets of a firm increase while all other components of ROE remain
unchanged, you would expect the firm's:
A)
ROE to increase.
B)
ROE will remain unchanged.
C)
ROA to increase.
D)
Equity multiplier to decrease.
E)
Profit margin to decrease.
Answer: B
The following information is given: The riskfree rate is 7%, the beta of stock A is 1.2,
the beta of stock B is 0.8, the expected return on stock A is 13.5%, and the expected
return on stock B is 11.0%. Further, we know that stock A is fairly priced and that the
betas of stocks A and B are correct. Which of the following regarding stock B must be
true?
A)
Stock B is also fairly priced.
B)
The expected return on stock B is too high.
C)
The expected return on stock A is too high.
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 Spring '10
 FANG
 Finance, Net Present Value, Pale Hose

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