Exam 2 w answers

Exam 2 w answers - Exam 2 BUSI 105 Name :_ True and False...

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Exam 2 BUSI 105 Name :____________________________________ True and False (2 Points each) 1. A project's payback period is the length of time necessary to generate an NPV of zero. T F 2. A firm's weighted-average cost of capital should be used in valuation of every new project they encounter, regardless of its risk. T F 3. CAPM, Capital Asset Pricing Model, is a theory of the relationship between risk and return that states that the expected risk premium on any security equals its beta times the market risk premium. T F 4. Accurate capital budgeting analysis depends on total cash flows as opposed to incremental cash flows (i.e., the difference between cash flow with project and cash flow without project). T F 5. When estimating the cost of debt (the current rate of return investors expect from holding their bonds), a firm should use the Yield to Maturity on their bonds, not the coupon rate. T F 6. When choosing among mutually exclusive projects, as long as at least one project has positive NPV, choose the project with the highest NPV. T F 7. Beta measures the sensitivity of a stock’s return to the return on the market portfolio. T F 8. If a stock’s expected return (based on its current market price) plots below the Security Market Line, the stock is underpriced. T F 9. Calculation of company costs of capital should be conducted with book values whenever possible. T F 10. T F
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Multiple Choice (2 points each): Circle the letter than proceeds the correct answer 11. What is the typical relationship between the standard deviation of an individual common stock and the standard deviation of a diversified portfolio of common stocks? A)
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Exam 2 w answers - Exam 2 BUSI 105 Name :_ True and False...

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