n1
0 / 5 points
When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the
degree of correlation between the new stock and stocks already in the portfolio, the less the additional
stock will reduce the portfolio's
A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50,
$2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14
percent rate of return, how much should you be willing to pay for th
Nelson's Landscaping has 1,200 bonds outstanding that are selling for $990 each. The
company also has 2,500 shares of preferred stock at a market price of $28 a share. The
common stock is priced at $37 a share and there are 28,000 shares outstanding. What
Which of the following statements is most correct?
If a stock's beta increased but its growth rate remained the same, then the new equilibrium
price of the stock will be higher (assuming dividends continue to grow at the constant growth
rate).
Market effi
Stocks A Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium,
which of the following statements is CORRECT?
A
B
Price
$25
$40
Expected
growth
7%
9%
Expected
return
10%
12%
The two stocks could n
n8
Heath an Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of
capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is
expected to remain co
Which of the following statements is most correct?
If the stock market is weak-form efficient this means you cannot use private information to
outperform the market.
If the stock market is semistrong-form efficient, this means the expected return on stock
You have been hired as a consultant by Feludi Inc.'s CFO, who wants you to help her estimate the cost of
capital. You have been provided with the following data: r RF = 4.10%; RPM = 5.25%; and b = 1.30. Based
on the CAPM approach, what is the cost of comm
cept
n1
5 / 5 points
Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same
situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its
n5
A firm's cost of capital:
will decrease as the risk level of the firm increases
for a specific project is primarily dependent upon the source of the funds used for the
project
is independent of the firm's capital structure
should be applied as the disc
If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements
is CORRECT? The stock is in equilibrium.
The stock's dividend yield is 5%.
The price of the stock is expected to decline in the future.
The stock'
n1
n2
5 / 5 points
You are considering the purchase of a new machine. Your analysis includes the evaluation of
two machines which have differing initial and ongoing costs and differing lives. Whichever
machine is purchased will be replaced at the end of i
McPherson Company must purchase a new milling machine. The purchase price is $50,000, including
installation. The machine has a tax life of 5 years, and it can be depreciated according to the following
rates. The firm expects to operate the machine for 4
Your company is considering a machine that will cost $ 5,670 at Time 0 and which can be
sold after 3 years for $ 300 . To operate the machine, $ 563 must be invested at Time 0 in
inventories; these funds will be recovered when the machine is retired at th
Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average
risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the
following independent projects should Puckett accept
Equivalent annual cost is often used for capital budgeting decisions by calculating the annual
cost of a project over its entire life.
n4
5 / 5 points
The net present value of a replacement item of equipment will decrease if the current
market value of th
Due to expected increases in sales, the Target Copy Company is contemplating purchasing a
new printing machine costing $ 570 . To accomodate the new sales, the company will need
to purchase additional inventory of $ 24 , part of which will be financed by
The net book value of equipment will:
remain constant over the life of the equipment
vary in response to changes in the market value
decrease at a constant rate when MACRS depreciation is used
increase over the taxable life of an asset
decrease slower und
n2
You are considering the purchase of a new machine. Your analysis includes the evaluation of
two machines which have differing initial and ongoing costs and differing lives. Whichever
machine is purchased will be replaced at the end of its useful life.
In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What
is the project's Year 1 cash flow?
Sales
revenues
$22,250
Depreciation
$8,000
Other
operating
costs
$12,000
Tax rate
35.0%
$8,903
$9,179
$9,463
$9,746
Month
January
February
March
April
May
June
July
August
September
October
November
December
Units
High
Medium
Low
75
69
0
50
86 High
54 Medium
72 Medium
Condition 1:
48 Low
Cell Value Is greater than cell $I$1 (Green Fill)
96 High
47 Low
Condition 2:
72 M
ept
n1
5 / 5 points
The greater the number of compounding periods within a year, then (1) the greater the future value of a
lump sum investment at Time 0 and (2) the smaller the present value of a given lump sum to be received
at some future date.
True
Fa
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10 / 10 points
ion 8
You have just purchased a new warehouse. To finance the purchase, you've arranged for a
30-year mortgage loan for 80 percent of the $2,600,000 purchase price. The monthly
payment on this loan will be $12,200. What is the
You are considering investing in one of these three stocks:
Stock
A
B
C
Standard Deviation
20%
10%
12%
Beta
0.59
0.61
1.29
If you are a strict risk minimizer, you would choose Stock _ if it is to be held in isolation and Stock
_ if it is to be held as par
0 / 15 points
n8
The returns of United Railroad Inc. (URI) are listed below, along with the returns on Major
Application of Technology (MAT). Economy 1 (with probability .15) gives a return of -14%
for URI and -9% for MAT. Economy 2 (with probability .25)
ncept
ion 1
5 / 5 points
A $250,000 loan is to be amortized over 8 years, with annual end-of-year payments. Which of these
statements is CORRECT?
The proportion of interest versus principal repayment would be the same for each of the 8
payments.
The annua
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Given: Loan Value = $100,000; Repayment Period = 12 months; Monthly Payment = $9,456. N
= 12. PV = -100,000. PMT = 9,456. FV = 0. Solve for I/YR = 2.00% which implies a nominal
annual rate of 24.00%. After you get the interest rate, change N
among the factors that are responsible for market risk.
risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio mana
systematic risk factors that can be diversified away.
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Recession,
You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years.
Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of
the following statements is CORRECT?
The present value