True statement regarding risky equity assets

Assignment Help Financial Management

Reference no: EM132061931

1. The internal rate of return is the:

A) rate of return needed for a project to payback within the allotted time period.

B) rate computed by discounting the cash inflows and dividing by the initial investment.

C) rate of return that equals to firm’s weighted average cost of capital.

D) discount rate that causes the net present value of a project to equal zero.

2. Based on CAPM, which of the following is a true statement regarding risky equity assets?

A) The stock’s total risk is measured by its Beta.

B) The firm specific risk of a stock can be reduced by diversification of investments.

C) Expected return of a company’s stock should be determined by its firm specific risk.

D) Standard deviation (?) measures stock’s systematic risk.

3. As the CFO of General Motor, you know your company has an overall cost of capital 9.8%. Which one of the following projects would you accept if you make your decision based on internal rate of return (IRR) and profitability index (PI) information as given below?

A) Project A with PI 98%

B) Project B with IRR 10%

C) Project C with IRR 9%

D) Project D with PI 10%

4. Which one of the following methods of raising capital is associated with tax benefit (reduce tax burden) to the firm?

A) Issuing new common stocks

B) Issuing new preferred stocks

C) Issuing new corporate bonds

D) Keeping more retained earnings in the firm

Reference no: EM132061931

Questions Cloud

Analyze transactions using given accounting equation : Bank One just approved a loan for Dante Inc. to start a Website design and maintenance business. Dante Inc. is ready to purchase needed equipment.

What is the profitability index of project : After that, the car will need to be replaced. Their current cost of capital is 5%. What is the profitability index of this project?

What is the value of warrants : What is the value of the warrants that were attached to the second issue?

Why critical thinking applies to all scientific pursuits : Evaluate why critical thinking applies to all scientific pursuits, and also why it should guide everyday judgments and decision making.

True statement regarding risky equity assets : The internal rate of return is the. Based on CAPM, which of the following is a true statement regarding risky equity assets?

What are the pros and cons of insisting that the entire : What are the pros and cons of insisting that the entire family attend the initial consultation? What would you do if you learned that some of the family members

Indicate a significant difference for a two-tailed test : If the sample mean difference (i.e. M1 - M2) is 8 points, is this enough to indicate a significant difference for a two-tailed test at the .05 level?

Determine the probability of winning your state lottery game : Determine the probability of winning your state's lottery game. Provide a rationale to support your determination.

Thinking about investing in new project : Go-Go Inc. is thinking about investing in a new project. what Go-Go's weighted average cost of capital?

User Account

All Pages