93. The cost of capital for common stock is ke= (D1/Po) + g. What are the assumptions of the model? A. Growth (g) is constant to infinity.B. The price earnings ratio stays the same.C. The firm must pay a dividend to use this model.D.All of these are assumptions of the model.Bloom's: UnderstandDifficulty: IntermediateLearning Objective: 10-05 Stock valuation is based on determining the present value of the future benefits of equity.94. Required return by investors is directly influenced by all of the following except: A. InflationB. U.S. Treasury ratesC.DividendsD. RiskBloom's: UnderstandDifficulty: IntermediateLearning Objective: 10-02 The required rate of return in valuing an asset is based on the risk involved.10-51

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Chapter 10 - Valuation and Rates of Return95. All of the following would likely cause a firm to raise capital at a lower cost except: A. Higher times interest earnedB. Higher profit marginC. Increased market shareD.Higher debt to asset ratioBloom's: UnderstandDifficulty: IntermediateLearning Objective: 10-02 The required rate of return in valuing an asset is based on the risk involved.96. The required return by investors is important to financial managers for all of the followingreasons except: A. It influences the firm's cost of financingB. It influences their stock priceC.It is the primary driver of their financial ratiosD. It helps when pricing new issues of securitiesAACSB: AnalyticBloom's: AnalyzeDifficulty: IntermediateLearning Objective: 10-02 The required rate of return in valuing an asset is based on the risk involved.97. The market allocates capital to firms based on all of the following except: A.Higher risk requires lower returns due to higher expectationsB. Level of efficiencyC. Expected returnsD. Degree of past performanceAACSB: AnalyticBloom's: AnalyzeDifficulty: ChallengeLearning Objective: 10-02 The required rate of return in valuing an asset is based on the risk involved.10-52

Chapter 10 - Valuation and Rates of Return98. Market Enterprises would like to issue bonds and needs to determine the approximate rate they would need to pay investors. A firm with similar risk recently issued bonds with the following current features a 5% coupon rate, 10 years until maturity, and a current price of $1,150. At what rate would Market Enterprises expect to issue their bonds, assuming annual interest payments? A.3.2%B. 5.9%C. 5%D. 4.8%AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateLearning Objective: 10-03 Bond valuation is based on the process of determining the present value of interest payments plus the present value of the principal payment at maturity.