Chapter 14 Quiz

Download Chapter 14 Quiz

Post on 08-Nov-2014

8 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

<p>AgroupofindividualsgottogetherandpurchasedalloftheoutstandingsharesofcommonstockofDLSmith,Inc.Whatistheretu Answer a. dividendyield b. costofequity c. capitalgainsyield d. costofcapital e. incomereturn TextileMillsborrowsmoneyatarateof13.5percent.Thisinterestrateisreferredtoasthe: Answer a. compoundrate b. currentyield c. costofdebt d. capitalgainsyield e. costofcapital</p> <p>Theaverageofafirm'scostofequityandaftertaxcostofdebtthatisweightedbasedonthefirm'scapitalstructureiscalledthe: Answer a. rewardtoriskratio b. weightedcapitalgainsrate c. structuredcostofcapital d. subjectivecostofcapital e. weightedaveragecostofcapital</p> <p>Thecostofequityforafirm: Answer a. tendstoremainstaticforfirmswithincreasinglevelsofrisk b. increasesastheunsystematicriskofthefirmincreases c. ignoresthefirm'sriskswhenthatcostisbasedonthedividendgrowthmodel d. equalstherisk-freerateplusthemarketriskpremium e. equalsthefirm'spretaxweightedaveragecostofcapital</p> <p>Thedividendgrowthmodelcanbeusedtocomputethecostofequityforafirminwhichofthefollowingsituations? I. firms that have a 100 percent retention ratio II. firms that pay a constant dividend III. firms that pay an increasing dividend IV. firms that pay a decreasing dividend Answer a. IandIIonly b. IandIIIonly c. IIandIIIonly d. I,IIandIIIonly e. II,IIIandIVonly</p> <p>Thecostofpreferredstock: Answer a. isequaltothedividendyield b. isequaltotheyieldtomaturity c. ishighlydependentonthedividendgrowthrate d. isindependentofthestock'sprice e. decreaseswhentaxratesincrease The weighted average cost of capital for a firm may be dependent upon the firm's: I. rate of growth. II. debt-equity ratio. III. preferred dividend payment. IV. retention ratio. Answer a. IandIIIonly b. IIandIVonly c. I,IIandIVonly d. I,IIIandIVonly e. I,II,IIIandIV</p> <p>IfafirmusesitsWACCasthediscountrateforalloftheprojectsitundertakesthenthefirmwilltendto: I. reject some positive net present value projects. II. accept some negative net present value projects. III. favor high risk projects over low risk projects. IV. increase its overall level of risk over time. Answer a. IandIIIonly b. IIIandIVonly c. I,IIandIIIonly d. I,IIandIVonly e. I,II,IIIandIV</p> <p>Thediscountrateassignedtoanindividualprojectshouldbebasedon: Answer a. thefirm'sweightedaveragecostofcapital b. theactualsourcesoffundingusedfortheproject c. anaverageofthefirm'soverallcostofcapitalforthepastfiveyears d. thecurrentriskleveloftheoverallfirm e. therisksassociatedwiththeuseofthefundsrequiredbytheproject</p> <p>Whichoneofthefollowingstatementsiscorrect? Answer a. Firmsshouldacceptlowriskprojectspriortofundinghighriskprojects b. Makingsubjectiveadjustmentstoafirm'sWACCwhendeterminingprojectdiscountratesunfairlypunishe c. Aprojectthatisunacceptabletodaymightbeacceptabletomorrowgivenachangeinmarketreturns d. Thepureplaymethodismostfrequentlyusedforprojectsinvolvingtheexpansionofafirm'scurrentopera e. Firmsthatelecttousethepureplaymethodfordeterminingadiscountrateforaprojectcannotsubjectiv</p> <p>Phil'sisasit-downrestaurantthatspecializesinhome-cookedmeals.Theresa'sisawalk-indelithatspecializesinspecialtysoupsa Answer a. Phil'sonly b. Theresa'sonly c. bothPhil'sandTheresa's d. neitherPhil'snorTheresa's e. cannotbedeterminedfromtheinformationprovided</p> <p>ommonstockofDLSmith,Inc.Whatisthereturnthattheseindividualsrequireonthisinvestmentcalled?</p> <p>donthefirm'scapitalstructureiscalledthe:</p> <p>whichofthefollowingsituations?</p> <p>thefirmwilltendto:</p> <p>miningprojectdiscountratesunfairlypunisheslow-riskdivisionswithinafirm morrowgivenachangeinmarketreturns volvingtheexpansionofafirm'scurrentoperations adiscountrateforaprojectcannotsubjectivelyadjustthepureplayrate</p> <p>walk-indelithatspecializesinspecialtysoupsandsandwiches.Bothfirmsarecurrentlyconsideringexpandingtheiroperationsduringthesummermon</p> <p>dingtheiroperationsduringthesummermonthsbyofferingpre-wrappeddonuts,sandwiches,andwrapsatalocalbeach.Phil'scurrentlyhasaWACC</p> <p>psatalocalbeach.Phil'scurrentlyhasaWACCof14percentwhileTheresa'sWACCis10percent.Theexpansionprojecthasaprojectednetpresentva</p> <p>pansionprojecthasaprojectednetpresentvalueof$12,600ata10percentdiscountrateandanetpresentvalueof-$2,080ata14percentdiscount</p> <p>entvalueof-$2,080ata14percentdiscountrate.Whichfirmorfirmsshouldexpandandofferfoodatthelocalbeachduringthesummermonths?</p> <p>helocalbeachduringthesummermonths?</p>