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Which statement is false regarding the Capital Asset Pricing Model?      A. The beta coefficient of a stock is constant.   B. The risk free rate is usually based on the treasury bill yield.   C. Market risk premium is the difference between market return and the risk free rate.   D. The cost of retained earnings is equal to the cost of new shares issued.

Which of the following statements are CORRECT? Check all that apply: The aftertax cost of debt decreases when the market price of a bond increases. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. Cost of capital is also known as the minimum expected or required return an investment must offer to be attractive.

Which one of the following statements related to the Security Market Line approach to equity valuation is correct? Assume the firm includes debt in its capital structure.  Group of answer choices   This model considers a firm's rate of growth.   The model will never produce the same cost of equity as the dividend growth model.   The model is dependent upon a reliable estimate of the market risk premium.   This approach generally produces a cost of equity that equals the firm's overall cost of capital.   The model applies only to non-dividend-paying firms.

Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mix

Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?

Is the debt level that maximizes a firm's expected EPS the same as the one that maximizes its stock price?  Explain. Explain how a firm might shift its capital structure so as to change its weighted average cost of capital (WACC).  What would be the impact on the value of the firm?

Explain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not affected), asset beta and equity beta (assuming that debt beta is zero). Should an investor choose to invest in a stock of a company with high or low D/E, or why expected returns on these stocks are equivalent, although they are not equal?

Which statement is correct, all else held constant? A. If you have both the dividend growth and the security market line's costs of equity, you should use the higher of the two estimates when computing WACC. B. The aftertax cost of debt increases when the market price of a bond increases. C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. D. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred.

Which of the following does NOT directly affect a company's cost of equity? Select one: a. Return on assets b. Expected market return c. Risk-free rate of return d. The company's beta

Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset Selection

How would each of the following scenarios affect a firm’s cost of debt, kd(1 – T); its cost of equity ke and its WACC?  Indicate with a plus sign (+), a minus (-) or a zero if the factor would raise, would lower or would have indeterminate effect on the item in question.  Assume for each answer that other things are held constant even though in some instances this would probably not be true.  Be prepared to justify your answer but recognize that several of the parts have no single correct answer.

How would each of the following scenarios affect a firm's cost of debt, ra(1-T); its cost of equity, s; and its WACC? Indicate with a plus (+), a minus (-), or a zero (0) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. Be prepared to justify your answer but recognize that several of the parts have no single correct answer. These questions are designed to stimulate thought and discussion. Probable Effect on ra(1-T) WACC rs a. The corporate tax rate is lowered. b. The Federal Reserve tightens credit. c. The firm uses me debt; that is, it increases its debt ratio. The dividend payout ratio is increased The firm doubles the amount of capital it raises during the year. е. The firm expands into a risky new area. f. The firm merges with another firm whose earnings g. are countercyclical both to those of the first firm and to…

According to Modigliani & Miller M Proposition II (MM Il), as a firm's debt-equity ratio decreases, what happens to the required rate of return on equity? Briefly explain including the key aspect of MM II.

Which of the following statements is incorrect? Group of answer choices Unsystematic risk can be eliminated by holding a diversified portfolio. Income taxes have the effect of increasing the cost of debt for a firm. All the answers are correct except one. Accounting balance sheets reflect book values. The current cost of debt for a publicly traded bond is derived from its yield to maturity calculation.

What does the capital asset pricing model (CAPM) calculate?   a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choice

In the context of the adjusted present value (APV) model of firm valuation, one major assumption is that firms will have a fixed debt to equity ratio in the future.

The most popular method that firms use to calculate the cost of equity is ________.  Group of answer choices flotation cost model CAPM coefficient of variation dividend discount model bond yield plus risk premium

Which one of the followings is incorrect regarding to cost of equity:     On average, it is higher than cost of debt.     It moves in the same direction with tax rates.     It is affected by return on market portfolio.     For a dividend paying company, it is sensitive to growth expectations for future dividends.     It is highly dependent on risk level of the firm and growth rate.   For calculating cost of equity, we can rely on dividend growth model or SML approach. Both models might suffer from the assumption that past is a good predictor of future. True False     Percy's Wholesale Supply has earnings before interest and taxes of €106,000. Both the book and the market value of debt is €170,000. The unlevered cost of equity is 15.5 per cent while the pre-tax cost of debt is 8.6 per cent. The tax rate is 28 per cent. What is the firm's weighted average cost of capital? Show your steps.

Which statement is NOT correct? The distribution of returns does not affect the expected average rate of return. To find the dividend yield, we can subtract the capital gain yield from the total stock return. Average geometric return is a better indicator than the average arithmetic return for the growth. Wider the distribution of return, riskier is the investment. The current risk premium for U.S. Treasury bills is 0%.