Question

11

the following are true or false

6) generally, market value are less desirable than book value for weighing a firm's funding components.

13) yield-to- maturity and Rd are not synonymous

18) other things equal, the retaer the WACC, the greater the NPV will be.

19) if 1000 shares of stock sell $20 per share and 50 bonds sell for $800 each, their combined market value <$50,000

20) If a firm's capital structure is 40% equity and 60% debt while equity costs 15% and debt costs 6%, the weighted average cost of capital >10%

8

11) probabilities range from -100% to 100%

Answer 1

6]

False

Market value weighting is more desirable because it more accurately reflects the proportion of each component of capital in the structure.

13]

True

R_d = YTM * (1 - tax rate)

18]

False

NPV is the present value of all cash flows, discounted at the WACC. Higher the discount rate, lower the NPV

19]

False

Combined market value = (1,000 * $20) + (50 * $800) = $60,000

20]

False

WACC = (40% * 15%) + (60% * 6%) = 9.6%

11]

False

Probabilities range from 0% to 100%