Reference no: EM132828441
Problem 1: The market value of Hayeraft Inc. common stock is $40 million and the market value of its risk free debt is $60 million. The beta of Hayeraft Inc. common stock is 0.8 and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (assume no taxes)
A. 10.8%
B. 14%
C. 9.2%
D. 8.1%
E. None of the answers is correct
Problem 2: When estimating the cash flows for an investment opportunity, one should remember the following important point(s):
A. Is that only cash flow is relevant
B. Are cash flow is relevant and always estimate cash flows on an incremental basis
C. Are cash flow is relevant, always estimate cash flows on an incremental basis, be consistent in the treatment of inflation and, include change in profits
D. Are cash flow is relevant, always estimate cash flow on an incremental basis, and be consistent in the treatment of inflation
E. Are to always estimate cash flows on an incremental basis and to be consistent in the treatment of inflation
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