Reference no: EM133063972

Questions -

Q1. With risk-free rate of 5%, Beta of 1.5, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 3%, compute for the weighted average cost of capital.

6.00

6.77

7.00

7.77

Q2. Magic House is to be liquidated. All creditors, both secured and unsecured, are owed P 2 million. Administrative costs of liquidation and wages payments are expected to be P500,000. A sale of assets is expected to bring P3 million after all costs and taxes. What is the liquidation value of Magi House?

3,000,000

2,000,000

1,000,000

500,000

Q3. Quantum Corporation reported 500,000 ordinary shares at the beginning of 2020. In the beginning of the second quarter, convertible bondholders opted to exercise their option to convert shares, resulting to additional 100,000 shares. In October 1, Quantum Corporation bought back 50,000 shares as they have spare cash. What is the weighted average outstanding shares for 2020?

600,000 shares

562,500 shares

550,000 shares

500,000 shares

Q4. Using Capital Asset Pricing Method (CAPM) compute for the cost of capital with risk-free rate of 5%, market return of 12% and Beta of 1.3.

14.01

14.10

14.00

14.11

Q5. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%. Compute for the after-tax cost of debt.

4.90%

5.00%

7.00%

10.00%

Q6. Cost of capital can be computed through WACC or CAPM

True

False

Q7. Valuation plays significant role in the business world with respect to portfolio management, business transactions or deals, corporate finance, legal and tax purposes.

True

False