Which of the following statements regarding the cost of equity is true?

Question 1.Which of the following statements regarding the cost of equity is true?

  •   It can be estimated in three different ways.
  •   It is always estimated using the present value of future dividends approach.
  •   It is estimated by solving for the discount rate for a perpetuity.
  •   It is generally lower than the cost of debt because equity holders are paid after taxes are paid.

 

Question 2.In the Capital Asset Pricing Model, the risk-free rate:

  •   links the CAPM to current market conditions.
  •   is the historic long-term average rate of government bonds.
  •   can be approximated by using yields on high-rated corporate bonds.
  •   is always the current yield on 30-year US government Treasury bonds.

 

Question 3.In the Capital Asset Pricing Model, the market risk premium is best approximated by:

  •   the most recent one-year return on the S&P 500 Index (or another market index).
  •   the long-term historic return on a stock market index such as the S&P 500 (or another market index).
  •   the long-term average spread of the S&P 500 (or another market index) over the yield of long-term government bonds.
  •   the return of the S&P 500 (or another market index) over the current yield of long-term government bonds.

 

Question 4.Investors will make an investment if:

  •   the historical rate of return exceeds the expected rate of return.
  •   the required rate of return exceeds the expected rate of return.
  •   the expected rate of return exceeds the actual rate of return.
  •   the expected rate of return exceeds the required rate of return.

 

Question 5.If a firm just paid a dividend equal to $4.00 a share, then for the WACC, in order to find the cost of equity, $4 should be:

  •   divided by the current price of the stock, and the quotient should be added to the dividend growth rate.
  •   divided by the current price of the stock.
  •   multiplied by one minus the tax rate, and the difference divided by the current price of the stock.
  •   multiplied by the sum of one plus the growth rate, and then divided by the current price of the stock; this quotient should be added to the dividend growth rate.

Question 6.Which of the following is true regarding market risk?

  •   It is measured by beta.
  •   It is also called nondiversifiable risk.
  •   It is also called systematic risk.
  •   all of the above

 

Question 7.Chapter 9 discusses three different types of returns. Identify the item in the list below that is NOT one of those three types of returns.

  •   the actual rate of return
  •   the expected rate of return
  •   the risk-free rate of return
  •   the required rate of return

Question 8.The discount rate used in project evaluation should:

  •   be based on the firm’s overall risk.
  •   be based on each project’s risk.
  •   be estimated using the WACC for all projects.
  •   All of the above are correct.

 

Question 9.Which of the following statements regarding the cost of debt is true?

  •   The cost of debt for bonds equals the coupon rate of outstanding bonds.
  •   The cost of debt for bonds is found by dividing the price by the annual coupon.
  •   The cost of debt for bonds is found by calculating their yield to maturity.
  •   The cost of debt equals the flotation costs charged by investment bankers who advise the firm.

 

Question 10.If an investor purchases a share of stock for $300, collects a dividend during the year equal to $35 a share, and sells the stock at the end of the year for $289, what is the investor’s return for the year?

  •   12.11%
  •   8.30%
  •   8.00%
  •   15.33%

 

Answer

Do You Need A Similar Assignment?

Place an order with us. Our skilled and experienced writers will deliver a custom paper which is not plagiarized within the deadline which you will specify.

Note; 6 Hours urgent orders deliver also available.

If you need more clarifications contact our support staff via the live chat for immediate response.

 

Type of paper Academic level Subject area
Number of pages Paper urgency Cost per page:
 Total: