Finance Questions
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On a graph with common stock returns on the Y-axis and market returns on the X-axis, the slope of the regression line represents:
A firm might categorize its projects into:I. cost improvementsII. expansion projects (existing business)III. new productsIV. speculative ventures
The market value of XYZ Corporation's common stock is $40 million and the market value of its risk-free debt is $60 million. The beta of the company's common stock is 0.8, and the expected market risk premium is 10%.If the Treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.)
A pure play is a comparable firm that specializes in one activity.
An example of diversifiable risk that a financial manager should ignore when analyzing a project's risk would include:
The market value of Charter Cruise Company's equity is $15 million and the market value of its debt is $5 million.If the required rate of return on the equity is 20% and that on its debt is 8%, calculate the company's cost of capital. (Assume no taxes.)
Company A's historical returns for the past three years are: 6.0%, 15%, and 15%. Similarly, the market portfolio's returns were: 10%, 10%, and 16%. Suppose the risk-free rate of return is 4%.What is the cost of equity capital (required rate of return of company A's common stock), computed with the CAPM?
A sensible way for a manager to account for overoptimistic cash-flow forecasts is to adjust the discount rate.
Firms with high operating leverage tend to have higher asset betas.
The market value of Charcoal Corporation's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8%.If the Treasury bill rate is 5%, what is the company's cost of capital? (Assume no taxes.)
The company cost of capital, when the firm has both debt and equity financing, is called the:
The company cost of capital is the cost of debt of the firm.
The market value of Cable Company's equity is $60 million and the market value of its debt is $40 million.If the required rate of return on the equity is 15% and that on its debt is 5%, calculate the company's cost of capital. (Assume no taxes.)
The market portfolio's historical returns for the past three years were 10%, 10%, and 16%. Suppose the risk-free rate of return is 4%.Estimate the market risk premium?
The company cost of capital is the appropriate discount rate for a firm's:
Risky projects can be evaluated by discounting expected cash flows at a risk-adjusted discount rate.
Generally, an industry beta, calculated from a portfolio of companies in the same industry, is more accurate that a beta estimate for a single company.
A higher standard error of a beta estimate indicates both a less-reliable estimate and a larger confidence interval.
A firm's cost of equity can be estimated using the:I. discounted cash-flow (DCF) approachII. capital asset pricing model (CAPM)III. arbitrage pricing theory (APT)
Companies with high ratios of fixed costs to project values tend to have high betas.