Multiple Choice

Multiple Choice - Multiple Choice Identify the letter of...

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Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Which of the following is a problem with the Internal Rate of Return? A) appropriate adjustment for the time value of money B) focus on cash flows C) multiple IRRs D) all of the above are problems with the Internal Rate of Return 2. An asset has a beta of 2.0 and an expected return of 20%. The expected risk premium on the market portfolio is 5% and the risk-free is 7%. The stock is A) overpriced B) underpriced C) appropriately priced D) Cannot tell from the given information 3. The slope of the security market line is: A) the return on the market. B) beta. C) the market risk premium. D) the risk-free rate. 4. A company just paid a $2.00 per share dividend on its common stock (D 0 = $2.00). The dividend is expected to grow at a constant rate of 7 percent per year. The stock currently sells for $42 a share. If the company issues additional stock, it must pay its investment banker a flotation cost of $1.00 per share. What is the cost of external equity, k e ? A) 11.76% B) 11.88% C) 11.98% D) 12.22% E) 12.30% 5. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? A) Long-term debt. B) Common stock. C) Accounts payable and accruals. D) Preferred stock.
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6. You have the following data on the securities of three firms: Return last year Beta Firm A 10% 0.8 Firm B 11% 1.0 Firm C 12% 1.2 If the risk-free rate last year was 3%, and the return on the market was 11%, which firm had the best performance on a risk-adjusted basis? A) Firm A B) Firm B C) Firm C D) There is no difference in performance on a risk-adjusted basis 7. Hudson Hotels is considering two mutually exclusive projects, Project A and Project B. The cash flows from the projects are summarized below: Year Project A Cash Flow Project B Cash Flow 0 -$100,000 -$200,000 1 25,000 50,000 2 25,000 50,000 3 50,000 80,000 4 50,000 100,000 The two projects have the same risk. At what cost of capital would the two projects have the same net present value (NPV)? A)
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Multiple Choice - Multiple Choice Identify the letter of...

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