FINC600 Week 4 Practice Quiz
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Corporate Finance
Week 4 Practice Quiz
Question 1 of 10 1.0/
1.0 Points
Using the company cost of capital to evaluate a
project is:
I) Always correct
II) Always incorrect
III) Correct for projects that are about as risky
as the average of the firm's other assets
A.I
only
B.II
only
C.III only
D.I
and III only
Question 2 of 10 1.0/
1.0 Points
Which of the following type of projects has
average risk?
A.Speculation
ventures
B.New
products
C.Expansion of existing business
D.Cost
improvement
Question 3 of 10 1.0/
1.0 Points
The market value of Cable Company's equity is $60
million, and the market value of its risk-free debt is $40 million. If the
required rate of return on the equity is 15% and that on the debt is 5%, calculate
the company's cost of capital. (Assume no taxes.)
A.15%
B.10%
C.11%
D.None
of the above
Question 4 of 10 1.0/
1.0 Points
The hurdle rate for capital budgeting decisions
is:
A.The cost of capital
B.The
cost of debt
C.The
cost of equity
D.All
of the above
Question 5 of 10 1.0/
1.0 Points
The market value of XYZ Corporation's common
stock is 40 million and the market value of the risk-free debt is 60 million.
The beta of the company's 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.9.2%
B.14%
C.8.1%
D.None
of the above
Question 6 of 10 1.0/
1.0 Points
On a graph with common stock returns on the Y-
axis and market returns on the X-axis, the slope of the regression line
represents the:
A.Alpha
B.Beta
C.R-squared
D.Adjusted
beta
Question 7 of 10 1.0/
1.0 Points
Generally, postaudits are conducted for large
projects:
A.shortly
after the completion of the project
B.after
several years after the completion of the project
C.shortly after the project has
begun to operate
D.well
before the start of the project
Question 8 of 10 1.0/
1.0 Points
You are given the following data for year-1.
Revenue = $43;
Total costs = $30;
Depreciation = $3;
Tax rate = 30%.
Calculate the operating cash flow for the project
for year-1.
A.$7
B.$10
C.$13
D.None
of the above
Question 9 of 10 1.0/
1.0 Points
The following are drawbacks of sensitivity
analysis except:
A.it
provides ambiguous results.
B.underlying
variables are likely to be interrelated.
C.it provides additional
information about the project that is useful.
D.all
of the above statements are drawbacks of sensitivity analysis.
Question 10 of 10 1.0/
1.0 Points
The accounting break-even point occurs when:
A.the
total revenue line cuts the fixed cost line
B.the
present value of inflows line cuts the present value of outflows line
C.the total revenue line cuts the
total cost line
D.none
of the above
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