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True or False?
(1) The risk-free rate is the dividend paid by the by the most secure stock in the equity market.
(2) To measure market risk of a stock, the Capital Asset Pricing Model uses the standard deviation of the returns on a stock.
(3) One important distinction between equity and debt is that most companies borrow forever, but dividend payments have a limited maturity.
(4) A conservative debt policy (a low debt ratio) can be of great comfort when a company suffers an adverse shock.
(5) By decreasing the proportion of fixed costs to total costs, and by making products less discretionary, companies can lower their cost of capital.
(6) The key advantage of a large portfolio of stocks is that it allows investors to diversify away market risk, but not specific risk.
The treasurer of a large corporation wants to invest $12 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 6.28 percent; that is, the EAR for this investment is 6.28 per..
Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield. Assume that the tax rate on dividends is 15%. What is Jose's marginal tax rate?
You inherit a portfolio that is 50% invested in the SP500 and 50% in US Treasuries. The total risk of the portfolio is too high in your opinion. What can you do to reduce the portfolio total risk?
Discount rates for real estate investments currently range from 3 to 25%,
What is the after-tax cost of capital for this debt financing?
Process What steps were taken to realize and disseminate the innovation?
The pre-tax salvage value of an asset is equal to the: A. book value if straight-line depreciation is used. B. book value if MACRS depreciation is used. C. market value minus the book value. D. book value minus the market value. E. market value.
Required rate of return Assume that the risk-free rate is 6% and the expected return on the market is 11%. What is the required rate of return on a stock with a beta of 1.1? Round your answer to two decimal places.
David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 12%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.58%. What is the comp..
A share of stock with a beta of .70 now sells for $45. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors’..
Suppose Klausenheimer, Inc. is considering a new project. The project alone will cost $50,000,000 and is expected to generate after-tax cash flows of $5,000,000, $6,000,000 and 7,000,000 during the first three years. To account for the additional ris..
If the opportunity cost of capital is 10%, which of the following three projects has the highest PVI? Which will increase shareholders wealth the most?
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