The equation for the capital asset pricing model

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Reference no: EM131888553

1) Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected depreciation of the U.S. dollar should allow sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)

A) increase; increase

B) decrease; decrease

C) increase; decrease

D) decrease; increase

2) The weighted average cost of capital (WACC) is:

A) the required rate of return for all of a firm's capital investment projects.

B) the actual rate of return for a firm's average risk projects.

C) not applicable for use by MNE.

D) None of the above

3) A firm whose equity has a beta of 1.0:

A) has greater systematic risk than the market portfolio.

B) stands little chance of surviving in the international financial market place.

C) has same returns as the market.

D) None of the above is true.

4) If a company accurately predict it's cost of equity, then:

A) the firm's wacc will also be inaccurate.

B) the firm may not be using the proper interest rate to estimate NPV.

C) the firm may correctly accept projects based on decisions made using the cost of capital computed with a correct cost of equity.

D) All of the above are true.

5) Which of the following statements is NOT true regarding beta?

A) Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market.

B) Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market.

C) Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market.

D) All of the statements above are true.

6) Which of the following is NOT a key variable in the equation for the capital asset pricing model?

A) the risk-free rate of interest

B) the expected rate of return on the market portfolio

C) the market risk premium

D) All are important components of the CAPM

Reference no: EM131888553

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