Reference no: EM133154722
Questions -
Q1. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D 1 = $1.45; P 0 = $44.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?
a. 9.80%
b. 10.19%
c. 9.50%
d. 9.31%
e. 9.89%
Q2. Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been rovided with the following data: r RF = 4.10%; RP M = 5.25%; and b = 1.05. Based on the CAPM approach, what is the cost of equity from retained earnings?
a. 7.79%
b. 9.61%
c. 10.29%
d. 8.84%
e. 11.15%
Q3. Which of the following statements is CORRECT?
a. The regular payback method was, years ago, widely used, but virtually no companies even calculate the payback today.
b. The regular payback does not consider cash flows beyond the payback year, but the discounted payback overcomes this defect.
c. The regular payback is useful as an indicator of a project's liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project.
d. The discounted payback method recognizes all cash flows over a project's life, and it also adjusts these cash flows to account for the time value of money.
e. The regular payback method recognizes all cash flows over a project's life.
Q4. Which of the following statements is CORRECT?
a. One defect of the IRR method is that it does not take account of cash flows over a project's full life.
b. One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future.
c. One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.
d. One defect of the IRR method is that it does not take account of the cost of capital.
e. One defect of the IRR method is that it does not take account of the time value of money.