What is the expected rate of return on the market

Assignment Help Financial Management

Reference no: EM132068649

1. You own a stock that has an expected return of 15.72 percent and a beta of 1.33. The U.S. Treasury bill is yielding 3.82 percent and the inflation rate is 2.95 percent. What is the expected rate of return on the market?

a. 12.07 percent b. 12.77 percent c. 13.64 percent d. 14.09 percent

2. For a risky security to have a positive expected return but less risk than the overall market, the security must have a beta:

a. of zero. b. that is > 0 but < 1. c. of one. d. that is > 1.

3. The weighted average cost of capital is defined as the weighted average of a firm's:

a. return on all of its investments. b. cost of equity, cost of preferred, and its aftertax cost of debt. c. pretax cost of debt and its preferred and common equity securities. d. common and preferred stock.

4. An increase in a levered firm’s tax rate will: a. decrease the cost of preferred stock.

b. increase both the cost of preferred stock and debt. c. decrease the firm’s cost of capital. d. increase the firm’s WACC.

5. A firm has multiple divisions of similar nature, yet varying degrees of risk. Which one of the following would be the most appropriate, yet relatively easy, means of assigning discount rates to each of its numerous proposed investments?

a. Assign every project a rate equal to the firm's cost of equity b. Assign every investment a random rate that varies between the firm's cost of debt and its cost of equity c. Assign every project a rate equal to the firm's WACC plus or minus a subjective adjustment d. Assign every project a rate equal to the market rate of return at the time of the proposal

6. The 7.5 percent preferred stock of Rock Bottom Floors is selling for $84 a share. What is the firm's cost of preferred stock if the tax rate is 35 percent and the par value per share is $100? a. 7.50 percent b. 8.13 percent c. 8.93 percent d. 9.14 percent

7. Musical Charts just paid an annual dividend of $1.84 per share. This dividend is expected to increase by 2.1 percent annually. Currently, the firm has a beta of 1.12 and a stock price of $31 a share. The riskfree rate is 4.3 percent and the market rate of return is 13.2 percent. What is the cost of equity capital for this firm?

a. 13.28 percent b. 11.21 percent c. 12.29 percent d. 11.95 percent

8. K's Bridal Shoppe has 4,000 shares of common stock outstanding at a price of $13 a share. It also has 500 shares of preferred stock outstanding at a price of $22 a share. There are 50 bonds outstanding that have a semiannual coupon payment of $25. The bonds mature in four years, have a face value of $1,000, and sell at 98 percent of par. What is the capital structure weight of the common stock?

a. 48.20 percent b. 49.68 percent c. 48.15 percent d. 46.43 percent

9. Western Electric has 21,000 shares of common stock outstanding at a price per share of $61 and a rate of return of 15.6 percent. The firm has 11,000 shares of $8 preferred stock outstanding at a price of $48 a share. The outstanding debt has a total face value of $275,000 and currently sells for 104 percent of face. The yield to maturity on the debt is 8.81 percent. What is the firm's weighted average cost of capital if the tax rate is 35 percent?

a. 14.52 percent b. 13.44 percent c. 14.19 percent d. 14.37 percent

10. Kelly's uses the firm's WACC as the required return for some of its projects. For other projects, the firms uses a rate equal to WACC plus one percent, while another set of projects is assigned rates equal to WACC minus some amount. Which one of the following factors should be the key factor the firm uses to determine the amount of the adjustment it will make when assigning a discount rate to a specific project?

a. The current market rate of interest

b. Actual source of funds used to finance the project

c. The perceived risk level of project

d. The firm’s current debt-equity ratio

Reference no: EM132068649

Questions Cloud

Flaw of the payback period method : Which of the following is NOT a discounted cash flow technique? Which of the following is NOT a flaw of the payback period method?

Share price after the repurchase if its enterprise value : What is AMC's share price after the repurchase if its enterprise value goes up? What is AMC's share price after the repurchase if its enterprise value declines?

By how much did the company retained earnings increase : By how much did the company’s retained earnings increase? With 100 million shares outstanding and a stock price of $90, what was the dividend yield?

What will the value of the whole firm be after investment : How many shares must the venture capitalist receive to end up with 33% of the company? What will the value of the whole firm be after this investment?

What is the expected rate of return on the market : You own a stock that has an expected return of 15.72 percent and a beta of 1.33. What is the expected rate of return on the market?

The depreciation expense is referred to as the depreciation : The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation:

How much money did the venture capitalists receive : How much money did Metropolitan Metropolitan raise ? How much money did the venture capitalists receive?

What will be your percentage ownership of the firm after IPO : How much will the firm raise? What will be your percentage ownership of the firm after the IPO?

Hedge their risk of adverse currency fluctuation : An american company is commencing work in England and wants to hedge their risk of an adverse currency fluctuation.

User Account

All Pages