Deck 12: Risk, Cost of Capital, and Valuation

Question 1

If you have returns on a security and also on the market,you can estimate beta using:

A)the capital asset pricing model.
B)the dividend discount model.
C)standard deviation.
D)variance.
E)regression analysis.

Answer 1

regression analysis.

Question 2

When the CAPM is used to estimate the cost of equity capital the expected excess market return is equal to:

A)the return on the stock minus the risk-free rate.
B)the difference between the return on the market and the risk-free rate.
C)beta times the market risk premium.
D)beta times the risk-free rate.
E)the market rate of return.

Answer 2

the difference between the return on the market and the risk-free rate.

Question 3

Which one of these will produce an acceptable estimate of the value of the market risk premium?

A)Historical rate of return on a market index
B)Average rate of return on the S&P 500 plus the risk-free rate
C)Dividend yield of the S&P 500 + Consensus forecast of future dividend growth - U.S.Treasury bill rate
D)Total dividends paid by the S&P 500 firms for a 1-year period divided by the U.S.Treasury bill rate
E)Rate computed using the CAPM and a beta of 1

Answer 3

Dividend yield of the S&P 500 + Consensus forecast of future dividend growth - U.S.Treasury bill rate

Question 4

Which of these may occur if a firm uses its overall cost of capital as the discount rate for all projects?
I.Profitable low-risk projects may be incorrectly rejected.
II.Only projects with risks similar to the current firm will be accepted.
III.Too many high-risk projects may be accepted.
IV.Only low-risk projects will be accepted.

A)II only
B)II and IV only
C)I and III only
D)I and IV only
E)I,II,and III only

Question 5

Which one of these statements related to beta is correct?

A)The beta of a risk-free security is set at 1.
B)The higher the beta the lower the risk of a security.
C)Beta measures the risk of a single security if held in a large,diversified portfolio.
D)Beta measures the total risk of a single security whether held independently or as part of a portfolio.
E)A stock with a high standard deviation will also have a high beta.

Question 6

Beta values are highly dependent on the:

A)direction of the market movement.
B)overall cycle of the market.
C)variance of the market and asset,but not their co-movement.
D)covariance of a security with the market.
E)market risk premium.

Question 7

Diversified Industries is a multi-product firm operating in a number of industries.Assume the firm is analyzing a new project that has risks unrelated to those of the current firm's product.When computing the net present value of the new project the cash flows should be discounted using:

A)a rate based on a beta of one since the firm is well diversified.
B)a rate based on the firm's current beta.
C)the risk-free rate of return.
D)the market rate of return.
E)a rate commensurate with the risk level of the project.

Question 8

The beta of a security provides an estimate of the:

A)characteristic line for the security.
B)slope of the capital market line.
C)slope of the security market line.
D)the market risk premium.
E)total risk of the individual security.

Question 9

The weighted average cost of capital for a firm is the:

A)discount rate which the firm should apply to all of the projects it undertakes.
B)overall rate which the firm must earn on its existing assets to maintain the value of its stock.
C)rate the firm should expect to pay on its next bond issue.
D)maximum rate which the firm should require on any projects it undertakes.
E)rate of return that the firm's preferred stockholders should expect to earn over the long term.

Question 10

The use of WACC as the discount rate when evaluating a project is acceptable when the:

A)firm is well established and financially stable.
B)WACC produces a positive NPV.
C)risk of the project is equal to the risk of the firm.
D)firm is well diversified and the unsystematic risk is negligible.
E)project has only systematic risk.

Question 11

Assume the cost of equity for a firm exceeds the firm's pretax cost of debt.Given this assumption,an increase in which of the following will increase the firm's WACC?
I.t_C
II.debt-to-equity ratio
III.R_B × (1 - t_c)
IV.Rs

A)I and IV only
B)II and III only
C)III and IV only
D)I,III,and IV only
E)I,II,III,and IV

Question 12

Although a definitive value cannot be determined,which one of these values is considered to be the best estimate of the market's historical risk premium according to your textbook authors?

A)7 percent
B)5 percent
C)9 percent
D)11 percent
E)15 percent

Question 13

If you assume beta is greater than 1,then which of these will increase the cost of equity capital according to CAPM?
I.Increase in the risk-free rate
II.Decrease in the risk-free rate
III.Increase in the market rate of return
IV.Decrease in the market rate of return

A)III only
B)I and III only
C)I and IV only
D)II and IV only
E)II and III only

Question 14

Which one of these is represented by the slope of the characteristic line?

A)market beta
B)market variance
C)security risk premium
D)security beta
E)market risk premium

Question 15

The discount rate for a project should equal the:

A)cost of equity of the firm.
B)expected return on a financial asset of comparable risk.
C)discount rate used on the firm's last profitable project.
D)firm's weighted average cost of capital.
E)market rate of return.

Question 16

Which one of these statements is true?

A)The betas used in the CAPM must be greater than 1 but less than 2.
B)By convention,the market is given a beta of zero.
C)There is zero chance of default on a U.S.Treasury bill.
D)A U.S.Treasury bill has a beta of zero.
E)The rate of return on a U.S.Treasury bill is used as the value of R_M in the CAPM.

Question 17

Which one of these statements related to beta is correct?

A)A firm with a given sales cyclicality can reduce its beta by replacing variable production costs with fixed costs.
B)The beta of debt is generally assumed to equal the market beta.
C)Highly cyclical stocks tend to have low betas.
D)The levered beta of equity exceeds the asset beta.
E)Stocks with a high variance must have a high beta.

Question 18

To calculate beta you divide the _______ of the stock with the market portfolio by the _____ of the market portfolio.

A)covariance;variance
B)variance;covariance
C)standard deviation;variance
D)expected return;variance
E)covariance;standard deviation

Question 19

The use of debt is called:

A)financial leverage.
B)production leverage.
C)operating leverage.
D)total asset turnover risk.
E)business risk.

Question 20

Assume each firm within an industry has similar operations and financial structures as the industry as a whole.Which one of these statements related to beta is correct given this assumption?

A)Industry betas are less reliable than firm betas.
B)Firms should use their own betas rather than the industry beta.
C)Betas should be computed on an annual basis.
D)The error in beta estimation for a single security exceeds the error for a portfolio of securities.
E)All firms in the industry will have the same beta.

Question 21

Which of the following are the two primary advantages of CAPM?
I.Simplicity
II.Absence of estimation error
III.Applicability to both dividend and non-dividend paying firms
IV.Explicit adjustment for risk

A)I and II
B)II and III
C)I and III
D)III and IV
E)I and IV

Question 22

Which one of these statements is correct?

A)ROE as used in the estimation of g is defined as a firm's earnings divided by the market value of its equity.
B)The DDM requires a short-term estimate of dividend growth.
C)Academics generally prefer the DDM over the CAPM.
D)The DDM seems to have more estimation error than the CAPM.
E)Measurement error in the estimate of the growth rate of dividends increases as you move from a single security to the overall market.

Question 23

A firm's cost of debt will decrease when:

A)market interest rates increase.
B)the coupon rate on the firm's bonds increase.
C)tax rates increase.
D)inflation rates increase
E)interest is paid semiannually versus annually.

Question 24

Which of these are determinants of beta?
I.Financial leverage
II.Cyclicality of revenues
III.State of the economy
IV.Operating leverage

A)I and IV only
B)II and III only
C)I,III,and IV only
D)I,II,and IV only
E)II,III,and IV only

Question 25

In project analysis,flotation costs are generally:

A)included as a final cost of the project.
B)included in the cost of capital.
C)treated as an additional tax.
D)treated as a cost of debt.
E)included in the amount raised.

Question 26

The cost of preferred stock:

A)increases as the beta of the firm increases.
B)is equal to the annual dividend divided by the par value of the stock.
C)is equal to the annual dividend divided by the present value of all the stock's dividend payments.
D)varies as tax rates vary.
E)is generally computed using the CAPM.

Question 27

The asset beta is defined as the beta of:

A)a fully diversified portfolio.
B)an undiversified portfolio.
C)the common stock of a levered firm.
D)a risk-free security.
E)the common stock of an unlevered firm.

Question 28

If a firm is all-equity financed,its WACC will equal:

A)R_F.
B)β × R_F.
C)β × R_S.
D)R_S.
E)R_M.

Question 29

When computing the weights to be used in a project's WACC equation,you should use the:

A)proportions of debt and equity that will finance the project.
B)current market values of debt and equity.
C)average market weights of debt and equity that are expected over the project's life.
D)average book weights of debt and equity that are expected over the project's life.
E)current book values of debt and equity.

Question 30

The terminal value of a firm is based on which one of these assumptions?

A)The growth rate of the future cash flows will exceed the firm's WACC.
B)All future cash flows will be constant.
C)The cash flows after Time T will diminish on an annual basis.
D)The cash flows will increase in the future at a constant perpetual rate.
E)The firm will be sold at Time T for the stated terminal value.

Question 31

In a changing interest rate environment,the cost of new debt:

A)is assumed to be zero for a levered firm.
B)is equal to the embedded cost of old debt.
C)generally exceeds the cost of equity on a pretax basis.
D)is equal to the cost of borrowing.
E)increases when taxes are considered.

Question 32

Firms A and B are identical except for their capital structures.Firm A is an all-equity firm while Firm B is levered.Given this,you can assume that Firm B's equity beta will be ______ Firm A's beta and its debt beta will be:

A)greater than;equal to zero.
B)greater than;equal to one.
C)equal to;equal to the market beta.
D)less than: equal to zero.
E)less than;equal to one.

Question 33

Which one of these formulas will provide an estimate of the growth rate of a security's dividends?

A)Beta × Return on equity
B)Retention ratio × Weighted average cost of capital
C)Retention ratio × Return on equity
D)Beta × Return on assets
E)Retention ratio × Return on assets

Question 34

How does the valuation of a firm vary from the valuation of a project using WACC?

A)Book values are used as the weights for WACC when valuing a firm
B)Debt and equity weights are set equal for WACC when valuing a firm
C)A terminal value is included in the valuation process for a firm but generally not for a project
D)Debt is not adjusted for taxes when computing the WACC for a firm valuation
E)The WACC must be set equal to R_M when valuing a firm

Question 35

Which one of these statements is correct?

A)The asset beta will equal the equity beta for a levered firm.
B)Leverage increases the asset beta.
C)A portfolio beta is the summation of the betas of each of the individual securities held in the portfolio.
D)The equity beta refers to the beta of an all-equity firm.
E)Financial leverage refers to a firm's use of debt and its related fixed costs of finance.

Question 36

Why is an accurate WACC so important when evaluating a new project? Assume a negative cash outflow at Time 0 and positive project cash flows thereafter.

A)The coupon rate on new bonds issued to fund the project will be set equal to WACC.
B)The project WACC will replace the firm WACC as the discount rate for all future projects.
C)The project's accept/reject decision will be based on the NPV calculated using that WACC.
D)The return to shareholders will be limited by the WACC.
E)The firm can only maintain or increase its current value if the project WACC exceeds the project's internal rate of return.

Question 37

The beta of a firm is more likely to be high under which two conditions?

A)High cyclical business activity and high operating leverage
B)High cyclical business activity and low operating leverage
C)Low cyclical business activity and low financial leverage
D)Low cyclical business activity and low operating leverage
E)Low operating and financial leverage

Question 38

Which of these are problems associated with the assignment of a project beta?
I.Determining the beta for a project which creates a new industry
II.Determining whether a beta represents more or less risk than that of the overall market
III.The project beta may differ from the beta of the existing firms in the selected industry
IV.Selecting the appropriate industry to which the project applies

A)I and IV only
B)II and III only
C)II,III,and IV only
D)I,II,and III only
E)I,III,and IV only

Question 39

Which one of these is the most commonly used multiple for overall firm valuation?

A)D/E
B)EV/EBITDA
C)P/E
D)Price/Book
E)Sales/Assets

Question 40

A firm with high operating leverage is best defined as a firm that has:

A)a high debt-to-equity ratio.
B)high fixed costs relative to variable costs.
C)a low,relatively stable beta.
D)high variable costs relative to fixed costs.
E)a high sales/assets ratio.

Question 41

What value should you assign as the flotation cost of internally-generated equity financing?

A)A cost that yields the firm's required rate of return on the funds utilized
B)Fifty percent of the external flotation cost of equity
C)A cost of zero
D)The same cost as that of the external equity financing
E)The same cost as that of the debt financing

Question 42

A project has an internal rate of return of 11.76 percent and a beta of 1.22.The market rate of return is 9.8 percent,the tax rate is 35 percent,and the risk-free rate is 3.4 percent.Should this project be accepted according to the CAPM if the firm is all-equity financed? Why or why not?

A)No;The CAPM rate is 11.21 percent.
B)No;The CAPM rate is 15.36 percent.
C)No;The CAPM rate is 11.96 percent.
D)Yes;The CAPM rate is 11.21 percent.
E)Yes;The CAPM rate is 15.36 percent

Question 43

Assume the overall market has a risk premium of 8.3 percent and the risk-free rate is 3.6 percent.What is the risk premium for a stock that has a .87 beta and a standard deviation of 11.2 percent?

A)3.62%
B)7.22%
C)7.60%
D)4.58%
E)10.82%

Question 44

An all-equity firm has a beta of 1.36.What will be the equity beta if the firm adopts a debt-to-equity ratio of .3?

A)1.660
B)1.768
C)1.360
D)1.674
E)1.943

Question 45

The Red Hen currently has a debt-to-equity ratio of .45,its cost of equity is 13.6 percent,and its beta is 1.49.The pretax cost of debt is 7.8 percent,the tax rate is 35 percent,and the risk-free rate is 3.1 percent.The firm's target debt-to-equity ratio is .5.What discount rate should be assigned to a new project the firm is considering if the project is equally as risky as the overall firm and will be financed solely with debt?

A)7.80%
B)9.76%
C)5.07%
D)9.34%
E)10.76%

Question 46

Wilson's is reviewing a project with an internal rate of return of 13.09 percent and a beta of 1.42.The market risk premium is 8.1 percent,the tax rate is 35 percent,and the risk-free rate is 2.9 percent.The firm's WACC is 12.68 percent.Will the project be accepted if the WACC is used as the discount rate for the project? Should the project be accepted according to the CAPM,and why or why not?

A)Yes;No;The CAPM return of 14.40 percent exceeds the IRR of 13.09 percent.
B)Yes;Yes;The project plots above the security market line.
C)Yes;Yes;The CAPM of 10.28 percent is less than the IRR of 13.09 percent.
D)No;Yes;The project plots above the security market line.
E)No;No;The project plots below the security market line.

Question 47

A firm has a beta of 1.3 and a debt-to-equity ratio of .4.The market rate of return is 11.6 percent,the tax rate is 32 percent,and the risk-free rate is 3.3 percent.The pretax cost of debt is 7.2 percent.What is the firm's WACC?

A)11.46%
B)8.90%
C)10.41%
D)9.96%
E)12.12%

Question 48

Delta Foods is an unlevered firm that is equally as risky as the market.U.S.Treasury bills are yielding 2.8 percent and the market risk premium is 8.1 percent.What discount rate should be assigned to a project that has the same risks as Delta Foods?

A)10.9%
B)8.1%
C)2.8%
D)5.3%
E)13.7%

Question 49

A levered firm has a debt-to-equity ratio of .6 and an equity beta of 1.42.What would be the beta of the firm if it switched to an all-equity financial structure?

A).8520
B)2.3700
C)2.2720
D).5325
E).8875

Question 50

Jeanette's Medical Supply has a beta of 1.3 and its R_WACC is 12.4 percent.The market risk premium is 7.4 percent and the risk-free rate is 3.6 percent.The firm's cash flow at Time 3 is $62,500.The cash flows have a 2.7 percent rate of growth.What is the terminal value of the firm at Time 3?

A)$648,056.60
B)$661,726.80
C)$667,229.73
D)$644,329.90
E)$649,688.15

Question 51

An all-equity firm has a beta of .98.The firm is evaluating a project that will increase the output of the firm's existing product.The market risk premium is 7.3 percent and the risk-free rate is 3.4 percent.What discount rate should be assigned to this expansion project?

A)8.39%
B)7.22%
C)7.15%
D)10.55%
E)11.37%

Question 52

The weights used in the computation of a project's flotation costs should be based on the:

A)market values of the firm's outstanding debt and equity.
B)current book value of the firm's debt and equity.
C)firm's historical debt-to-equity ratio.
D)the firm's target debt-to-equity ratio.
E)project's actual sources of funding.

Question 53

Buster's target debt-to-equity ratio is .6,its cost of equity is 11.8 percent,and its beta is 1.2.The aftertax cost of debt is 6.4 percent,the tax rate is 34 percent,and the risk-free rate is 3.2 percent.What discount rate should be assigned to a new project the firm is considering if the project's beta is estimated at .87?

A)11.8%
B)9.44%
C)11.6%
D)9.67%
E)8.30%

Question 54

Green Roof Foods currently has a debt-to-equity ratio of .63,its cost of equity is 13.6 percent,and its pretax cost of debt is 7.8 percent.The tax rate is 35 percent and the risk-free rate is 3.1 percent.The firm's preferred capital structure consists of 50 percent debt.What discount rate should be assigned to a new project the firm is considering if the project is equally as risky as the overall firm and will be financed solely with equity?

A)7.80%
B)9.76%
C)5.07%
D)9.34%
E)10.70%

Question 55

A portfolio is invested 20 percent each in Stock L with a beta of 1.52 and Stock K with a beta of 1.28.The remainder of the portfolio is invested in secured debt.What is the portfolio beta?

A)1.72
B).56
C)1.40
D)1.33
E)1.00

Question 56

Taylor's has a beta of .78 and a debt-to-equity ratio of .2.The market rate of return is 10.6 percent,the tax rate is 34 percent,and the risk-free rate is 1.4 percent.The pretax cost of debt is 6.1 percent.What is the firm's WACC?

A)8.08%
B)7.67%
C)8.16%
D)9.96%
E)7.82%

Question 57

The S&P 500 has a dividend yield of 2.4 percent.Analysts expect overall dividends to grow at a 5.2 percent annually.Treasury bills yield 3.2 percent.The expected market rate of return is ____ percent and the market risk premium is ____ percent.

A)10.8;7.6
B)4.4;1.2
C)7.6;4.4
D)10.8;4.4
E)10.8;5.2

Question 58

An all-equity firm has a beta of .85.Assume the beta of debt is equal to the risk-free beta.If the firm changes its capital structure to 40 percent debt its equity beta would be ____ and if it changed to 50 percent debt is equity beta would be _____.

A)1.190;1.275
B)1.417;1.275
C)1.190;1.700
D)1.417;1.700
E).567;.850

Question 59

Alaskan Markets has a target capital structure of 45 percent debt and 55 percent equity.The pretax cost of debt is 6.5 percent,the tax rate is 34 percent,and the cost of equity is 13.7 percent.The firm is considering a project that is equally as risky as the overall firm.The project has an initial cash outflow of $1.8 million and annual cash inflows of $550,000 at the end of each year for four years.What is the NPV of the project?

A)-$36,209.17
B)-$18,914.70
C)$84,087.95
D)$87,001.03
E)$94,950.98

Question 60

A levered firm has a target capital structure of 30 percent debt and 70 percent equity.The aftertax cost of debt is 6.5 percent,the tax rate is 34 percent,and the cost of equity is 12.3 percent.The firm is considering a project that is equally as risky as the overall firm.The project has an initial cash outflow of $1.1 million and annual cash inflows of $480,000 at the end of each year for three years.What is the NPV of the project?

A)$97,777.68
B)$95,856.82
C)$82,018.07
D)$87,001.03
E)$94,322.15

Question 61

A firm has an EBIT of $37,300,depreciation of $4,600,interest of $1,200,and taxes of $400.The EBITDA multiple is 9.4.What is the value of the firm?

A)$378,820
B)$307,380
C)$292,340
D)$393,860
E)$341,214

Question 62

The Bird Carver has a target WACC capital of 9 percent.The firm has an aftertax cost of debt of 6 percent and a cost of equity of 13 percent.What debt-to-equity ratio is needed for the firm to achieve its target WACC?

A).75
B).67
C)1.33
D).93
E)1.08

Question 63

Tanner's Leather is an all-equity financed firm.The beta is 1.16,the market risk premium is 7.52 percent,the market rate of return is 10.64 percent,and the tax rate is 34 percent.The firm announced that the next dividend will be $.6864 per share and future dividends will increase by 4 percent annually.The stock sells for $13 a share.What is the average cost of equity?

A)10.21%
B)10.56%
C)10.63%
D)9.74%
E)9.98%

Question 64

Leo's Cars has a beta of 1.6 and its R_WACC is 14.1 percent.The market risk premium is 8.2 percent and the risk-free rate is 3.3 percent.The firm's cash flow at Time 3 is $18,400.The cash flows have a 3.5 percent rate of growth.What is the terminal value of the firm at Time 3?

A)$173,584.91
B)$179,660.38
C)$151,004.16
D)$147,399.38
E)$142,414.86

Question 65

Southwest Tours needs $80,000 for a new project.The firm has a target capital structure of 25 percent debt and 75 percent equity.The flotation cost of debt is 5 percent compared to 10.25 percent for equity.What amount does the firm need to raise if it generates sufficient internal equity to cover the equity need?

A)$87,851.75
B)$76,211.17
C)$81,012.66
D)$69,497.79
E)$79,674.09

Question 66

Buster's Ice Cream has 2,500 bonds outstanding that are selling for $1,020 each and yielding a pretax 7.2 percent.There 60,000 shares of common stock outstanding with a beta of 1.3 and a market price of $56 a share.The risk-free rate is 4 percent,the market risk premium is 7 percent,and the tax rate is 35 percent.What is WACC?

A)7.26%
B)7.39%
C)8.59%
D)9.03%
E)9.47%

Question 67

The Template Corporation has an equity beta of 1.1.The firm's market value debt-to-equity ratio is .6.Template has a zero tax rate.What is the asset beta?

A).705
B).725
C).967
D).6875
E)1.4545

Question 68

Upper Roads is an all-equity financed firm.The beta is .75,the market risk premium is 8 percent,and the tax rate is 35 percent.The firm just issued its annual dividend of $1.42 per share and announced that future dividends will increase by 5 percent annually.The stock sells for $27 a share.What is the cost of equity?

A)10.26%
B)9.38%
C)11.19%
D)10.52%
E)11.78%

Question 69

A firm has net income of $37,300,depreciation of $4,600,interest of $1,200,and taxes of $400.The EBITDA multiple is 9.4.What is the value of the firm?

A)$378,820
B)$408,900
C)$292,340
D)$393,860
E)$341,214

Question 70

ABC stock has a beta that is 20 percent higher than the overall market beta.The risk-free rate is 2.7 percent and the market rate of return is 13.6 percent.What is the cost of equity?

A)16.27%
B)15.91%
C)15.78%
D)16.32%
E)16.08%

Question 71

Golden Eagle has 1,500 bonds outstanding with a $1,000 par value,a 5 percent coupon,14 years to maturity,semiannual interest payments,and a market price equal to 98 percent of par.The firm also has 50,000 shares of common stock outstanding at a price per share of $43 and a beta of 1.1.The risk-free rate is 3 percent,the market risk premium is 7.5 percent,and the tax rate is 35 percent.What is the firm's WACC? (When computing WACC,round your cost of debt to 4 decimal places when expressed as a decimal value. )

A)9.03%
B)8.79%
C)8.54%
D)8.05%
E)8.18%

Question 72

Winter's prefers to finance its capital spending with 40 percent debt,20 percent internal equity,and 40 percent external equity.The floatation cost of debt is 5.5 percent while it is 9.75 percent for equity.What is the weighted average flotation cost?

A)6.10%
B)8.28%
C)8.49%
D)7.63%
E)7.90%

Question 73

CTO Transport has an aftertax cost of debt of 6.8 percent,a cost of equity of 14.2 percent and a cost of preferred stock of 8.5 percent.The firm has 50,000 shares of common stock outstanding at a market price of $43 a share.There are 20,000 shares of preferred stock outstanding at a market price of $46 a share.The bond issue has a total face value of $500,000 and sells at 97 percent of face value.The tax rate is 35 percent.What is WACC?

A)11.72%
B)12.06%
C)12.42%
D)11.39%
E)10.87%

Question 74

The Lumber Shack just paid an annual dividend of $1.23 a share.The dividend growth rate is 4 percent,the tax rate is 34 percent,and the common stock sells for $38 a share.What is the cost of equity?

A)7.24%
B)7.09%
C)7.18%
D)7.37%
E)7.32%

Question 75

Zee's Toy Store needs $187,000 for expansion.The firm has a target capital structure of 40 percent debt and 60 percent external equity.The flotation cost of debt is 5.5 percent compared to 9.5 percent for equity.What amount does the firm need to raise?

A)$201,773.00
B)$199,716.00
C)$203,040.17
D)$193,333.33
E)$186,111.75

Question 76

The cost of equity for Ryan Corporation is 15.43 percent.The expected return on the market is 13.81 percent,the risk-free rate is 3.7 percent,and the tax rate is 35 percent.What is the equity beta?

A).92
B).86
C).94
D)1.07
E)1.16

Question 77

Finally There! has 1,600 bonds outstanding with a $1,000 par value,a 6 percent coupon,8 years to maturity,semiannual interest payments,and a market price equal to 97 percent of par.The firm also has 60,000 shares of common stock outstanding at a price per share of $32 and a beta of 1.15.The risk-free rate is 5 percent,the market risk premium is 7 percent,and the tax rate is 35 percent.What is the firm's WACC? (When computing WACC,round your cost of debt to 4 decimal places when expressed as a decimal value. )

A)9.58%
B)10.34%
C)9.10%
D)9.19%
E)10.12%

Question 78

The Flying Dove has 1,200 bonds outstanding with a $1,000 par value,a 7 percent coupon,12 years to maturity,semiannual interest payments,and a market price equal to 102 percent of par.The firm also has 47,000 shares of common stock outstanding at a price per share of $38 and a beta of 1.3.The risk-free rate is 4 percent,the market risk premium is 7 percent,and the tax rate is 34 percent.What is the firm's WACC? (When computing WACC,round your cost of debt to 4 decimal places when expressed as a decimal value. )

A)9.58%
B)10.51%
C)9.82%
D)9.37%
E)10.38%

Question 79

Metal Roofs has an equity beta of 1.65,a capital structure with 2 parts of debt for every 3 parts of equity,and a zero tax rate.What is its asset beta?

A)1.48
B).40
C)1.10
D)1.06
E).99

Question 80

Asian Foods needs $65,000 for a new project.The firm has a target capital structure of 25 percent debt and 75 percent external equity.The flotation cost of debt is 5.25 percent compared to 10.15 percent for equity.What amount does the firm need to raise?

A)$70,801.25
B)$76,211.17
C)$71,369.75
D)$69,497.79
E)$59,674.09