Question

1. The cost of equity for a corporation is:

A) the rate of return required by a firm’s stockholders

B) dividends a firm pays

C) the price of borrowing money

D) all of the above

2. The cost of debt for a corporation is:

A) the price of borrowing money.

B) the rate of return required by a firm’s stockholders.

C) the rate of return to all investors in the firm.

D) all of the above.

3. The most appropriate discount rate for a project is typically:

Group of answer choices

A) the risk-free rate of return

B) the market interest rate

C) the actual return of the project

D) the firm’s average cost of capital

4. The cost of debt for a corporation is:

A) the price of borrowing money.

B) the rate of return required by a firm’s stockholders.

C) the rate of return to all investors in the firm.

D) all of the above.

Answer #1

**1]**

A - The rate of return required by a firm’s stockholders.

The cost of equity is the opportunity cost of equity capital, which is the minimum return required by stockholders for investing in the company

**2]**

A) the price of borrowing money.

Cost of debt is the interest rate paid on debt (loans or bonds)

**3]**

D) the firm’s average cost of capital

The appropriate discount rate is the weighted average cost of capital, considering all the sources of capital used in the capital structure

**4]**

A) the price of borrowing money.

T/F
_____ The cost of equity reflects the return required for
investors to own the stock.
_____ Having higher correlation between stocks in a diversified
portfolio reduces the average return.
_____ An investment that has an NPV or 1 should be accepted
because it is positive.
_____ Adding dividends to net income makes it net cash flow.
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relevant
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Generally, the return on an equity investment is higher than the
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a. equity risk is higher
b. people are more willing to invest in debt
c. the cost of preferred stock is usually between the cost of
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d. all the above
Although the money paid to investors is both the firm's cost and
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1. Consider the following
project. The firm’s cost of funds and its required rate
of return is 13 percent.
Year
Cash Flow
0
-31,000
1
13,000
2
14,000
3
9,000
What is the
nondiscounted payback for this project? If the firm must
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27. The _________________________ rate of interest is typically
the required rate of return on a three-month U.S. Treasury
bill.
A) nominal
B) real
C) risk-free
D) premium
2) TRUE/FALSE The questions below
A)Preferred stock has a characteristic of debt financing since
it provides a fixed, periodic cash payment.
B) Common stock gives the holder voting rights which permit
selection of the corporation's Board of Directors.
C) The Gordon constant growth stock model is an approach to
stock valuation that assumes...

1. Consider the following
project. The firm’s cost of funds and its required rate
of return is 13 percent.
Year
Cash Flow
0
-31,000
1
13,000
2
14,000
3
9,000
What is the
nondiscounted payback for this project? If the firm must
have payback in less than 2.5 years should it accept or reject the
project? (5 Points)
What is the
Net Present Value of the project assuming the required rate of
return is 13 percent? Should the firm accept or reject
the project?...

1. The internal rate of return identifies:
A. the minimum acceptable discount rate.
B. the cost-benefit ratio.
C. the average profit from a project.
D. none of the given answers.
2. The net present value rule states that you
should accept a project if the NPV:
A. is equal to zero or negative.
B. exceeds the required rate.
C. is less than 1.0.
D. is positive.
3. A net present value of zero implies that an
investment:
A. has an...

The company has the following market values of debt and
equity:
Market value of debt: $50
Market value of equity: $50
Therefore, the total market value of the assets is $100.
The firm has 10 shares outstanding; therefore, the current price
per share is $5. The managers are considering an investment project
with an initial cost of 30. They believe that the project should be
worth $40. The company announces that it will issue new common
stocks to obtain $30....

Which of the following statements defines the internal rate of
return (IRR) for a project?
A. Discount rate which results in a zero NPV
B. Discount rate which results in a NPV equal to the project's
initial cost
C. Rate of return required by the project's investors
D. The current market rate of return for projects of similar
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You are calculating an equity required rate of return for Kings
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Multiple Choice
the discount rate that results in a zero net present value (NPV)
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the discount rate that results in a net present value (NPV)
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the discount rate that causes a project's after-tax income to
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