Chapter 8
RISK and RETURNS
Market.Risk.Prem. = (rM rRF) Additional return over the risk-free rate needed to compensate investors for assuming an average
amount of risk. Its magnitude depends on the st
Practice-Time Value of Money
Assume all interest rates are 10%!
1. What is the value today of receiving $100 in 7 years?
2. If you deposit $100 in an account today it will be worth how much in 4 years
Practice-Stock Valuation
1. Johnson Foods Inc. just paid a dividend of $10 (i.e., D 0 = 10.00). Its
dividends are expected to grow at a 4% annual rate forever. If you require
a 15% rate of return on i
Practice-Review Session (Chapter 10, 11, 12, 14, 15)
1. A stock analyst has obtained the following information about J-Mart, a large retail
chain:
The company has non-callable bonds with 20 years matu
Comprehensive/Spreadsheet Problem
Parker Products manufactures a variety of household products. The company is
considering introducing a new detergent. The companys CFO Brain Parker has
collected the
Practice-Cash Flow Estimation
You are given the responsibility of conducting the project selection analysis in your firm.
You have to calculate the NPV of a given project. The appropriate cost of capi
Practice-Capital Structure
1. An increase in the debt ratio will generally have no effect on which of these items?
a.
b.
c.
d.
e.
Business risk.
Total risk.
Financial risk.
Market risk.
The firm's bet
PCAIOB ADOPT APIC AND THEN ADDED THEIR OWN
Depreciation has nothing to do with cash, amortization. Most accounts eventually run into cash.
General cash account
Imprest payroll account protection?
Bran
CHAPTER Fifteen MULTIPLE REGRESSION
MULTIPLE CHOICE QUESTIONS In the following multiple choice questions, circle the correct answer. 1. A multiple regression model has the form Y = 5 + 6X + 7W As X in
Formula
x x=
n
s=
2
(x x ) 2
n 1 Variance =
CV =
s x
100
Mean= E(x) =
X P( x) =
(x )
2
p ( x) = 2
= np
2 = np ( 1- p )
z=
x
x z= Z test P p-value > , dont reject h n t= b1 1 sb1
t=
x s T test p
PracticeWeightedAverageCostofCapital
Q1:Whichofthefollowingstatementsiscorrect?
A. TheWACCasusedincapitalbudgetingisanestimateofacompanysbeforetaxcostof
capital.
B. Achangeinacompanystargetcapitalstru