Question

question 3

Your firm seeks to obtain a short-term loan from a local bank. The banker quotes you a rate of 3%. This is an inflation rate.

Select one:

True

False

question 6

The pure play approach:

Select one:

a. Is most useful when each division makes a multitude of different products.

b. Is easier to implement than the subjective approach.

c. Can be used to find the cost of capital for a division.

d. Should be used only if a firm has more than three divisions.

e. Cannot be used if the firm has preferred stock outstanding.

question 8

Generally speaking, financial markets are less efficient than real asset markets.

Select one:

True

False

question 11

The market value of a firm’s equity is frequently called:

Answer 1

question 3:

FALSE.

the rate that a bank quotes is the interest rate and not the inflation rate .

The pure play approach:

the pure play approach can ne used to calculate the cost of capital for a division.

there are three methods of calculating the divisional cost of capital:pure play approach,subjective approach,spanning approach.

so the correct option is option c.

the subjective approach is preferred over than the pure play approach,when a company cannot provide a objective discount rate for a project so they use a subjective approach.

Question 8: FALSE

Financial markets are efficient markets as the information is available to all, and the stock prices instantly react to these information.

question 11:

the market value of equity is called market capitalization and is calculated by multiplying the total number of shares * market price.