The cost of capital for a project depends primarily

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Reference no: EM131569455

1. You own a portfolio of two stocks, A and B. Stock A is valued at $2,000 and has an expected return of 10.5 percent. Stock B has an expected return of 14.7 percent. What is the expected return on the portfolio if the portfolio value is $5,000?

12.03 percent

11.73 percent

13.02 percent

10.92 percent

2. The beta of the market is

-1

0.5

3. Which one of the following represents the best estimate for a firm's pre-tax cost of debt?

coupon rate on the firm's latest bond issue

weighted average yield-to-maturity on the firm's outstanding debt

average coupon rate on the firm's outstanding bonds

current yield on the firm's outstanding debt

4. The managers of California Co. use the firm's weighted average cost of capital (WACC) as the required return for projects similar to those of the firm's existing operations. For projects of higher risk, they use a rate equal to WACC plus 2 percent. For projects of lower risk, they subtract 2 percent from the WACC. Which approach is the firm using to determine the required return for a project?

beta adjustment

systematic

pure play

subjective

5. The cost of capital for a project depends primarily on the:

firm's overall source of funds.

use of the funds.

current tax rate.

source of the funds used for the specific project.

Reference no: EM131569455

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