Reference no: EM132555005

Problem 1: Given the following information, what is the standard deviation of stock A if it has an expected return of .27% in a boom economy, an expected return of 18% in a good economy, and an expected return of 3% in a recession? The probabilities of boom, normal, recession are 0.2, 0.6, and 0.2, respectively.

Select one:

a. 0.1159

b. 0.0703

c. 0.0128

d. 0.0697

e. 0.0773

Problem 2: A firm has $500 in debt at a cost of 7%, a 34% tax rate, a total firm value of $1,100, and an unlevered return of 12.5%. What is the WACC?

Select one:

a. 9.88%

b. 11.41%

c. 9.24%

d. 10.57%

e. 11.84%

Problem 3: Larger depreciation expenses increase the value of the depreciation tax shield, all else equal.

Select one:

True

False

Problem 4: A firm is worth $1,400, has a 35% tax rate, total debt of $600, an unlevered return of 15%, and a cost of debt of 5.5%. What is the cost of equity?

Select one:

a. 18.90%

b. 16.67%

c. 17.93%

d. 18.41%

e. 19.63%

Problem 5: Today, your grandmother gave you a gift of $23,000 to help pay for your college education. She told you that this amount was the result of a one-time investment at 7.5% interest 13 years ago. How much did your grandmother originally invest?

Select one:

a. $9,225.00

b. $8,982.93

c. $9,504.55

d. $9,419.25

e. $9,373.49