The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): $\begin{array}{llcc} \text { Total assets } &\$6,840 \\ \text { Interest-beaning debt } &\$3,562\\ \text { Average pre-tax borrowing cost} &11.59\%\\ \text {Common equity: } &\\ \text { Book value } &\$2,560\\ \text { Market value } &\$12,850\\ \text { Income tax rate } &35\%\\ \text {Market equity beta } &1.24\\ \end{array}$ - Assuming that riskless rate is 4.2% and the market premium is 6.2% calculate Zonk's cost of equity capital:

A) 10.4% B) 7.69% C) 11.89% D) 2.0% A) 10.4% B) 7.69% C) 11.89% D) 2.0%

The following data pertain to Loren Corporation (dollar amounts in thousands): $\begin{array}{lc} \text { Total Assets } & \$ 10,254 \\ \text { Interest-Bearing Debt } & \$ 1,257 \\ \text { Average Pre-tax borrowing cost } & 9.20 \% \\ \text { Common Equity: } & \\ \text { Book Value } & \$ 5,624 \\ \text { Market Value } & \$ 21,479 \\ \text { Income Tax Rate } & 32 \% \\ \text { Market Equity Beta } & 1.56 \\ \text { Riskless interest rate } & 3.8 \% \\ \text { Market risk premium } & 6.5 \% \end{array}$ Using this information, calculate the following: a. Loren Corporation's cost of equity capital b. The weight on debt capital that should be used to calculate Loren's weightech-average cost of capital. c. Loren Corporation'sweighted-average cost of capital

The answer of The following data pertain to Loren Corporation...

For each of the following companies, determine the total dividends paid to common equity holders in order to value the firm: $\begin{array}{llll} &&\underline{\text { Company}}&\\ \text { (amounts in thousands) } &\underline{\text { Adam }} &\underline{\text { Baxter }} & \underline{\text { Cooper }} \\ \text { Dividends Paid to Common Shareholders } & \$ 124 & \$2,134&\$325 \\ \\ \text { Common Stock Repurchases } & \$ 412 & \$ 140 & \$ 1,247\\ \\ \text { Common Stock Issued} &\$95 &\$1,985 &\$145 \end{array}$

The answer of For each of the following companies, determine...

Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Because the market equity beta reflects the level of operating leverage, financial leverage, variability of sales, and other characteristics of a firm, there are situations where an analyst might have to adjust the beta because of changes in the capital structure. A situation that might require an analyst to estimate a new levered beta is a ___________________________________.

(Short Answer)

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Question 41

The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions): Total assets \6 ,840 Interest-beaning debt \3 ,562 Average pre-tax borrowing cost 11.59\% Common equity: Book value \2 ,560 Market value \1 2,850 Income tax rate 35\% Market equity beta 1.24 - Assuming that riskless rate is 4.2% and the market premium is 6.2% calculate Zonk's cost of equity capital:

(Multiple Choice)

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Question 42

The following data pertain to Loren Corporation (dollar amounts in thousands): Total Assets \ 10,254 Interest-Bearing Debt \ 1,257 Average Pre-tax borrowing cost 9.20\% Common Equity: Book Value \ 5,624 Market Value \ 21,479 Income Tax Rate 32\% Market Equity Beta 1.56 Riskless interest rate 3.8\% Market risk premium 6.5\% Using this information, calculate the following: a. Loren Corporation's cost of equity capital b. The weight on debt capital that should be used to calculate Loren's weightech-average cost of capital. c. Loren Corporation'sweighted-average cost of capital

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Question 43

Explain the theory behind the dividends valuation approach. Why are dividends value-relevant to common equity shareholders?

(Essay)

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Question 44

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements. What are the three elements that the analyst needs to measure?

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Question 45

For each of the following companies, determine the total dividends paid to common equity holders in order to value the firm: (amounts in thousands) Dividends Paid to Common Shareholders \ 124 \2 ,134 \3 25 Common Stock Repurchases \ 412 \ 140 \ 1,247 Common Stock Issued \9 5 \1 ,985 \1 45

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Question 46

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.

(Short Answer)

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Question 47

Firm-specific factors that increase the firm's nondiversifiable risk include all of the following except:

(Multiple Choice)

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Question 48

The historical discount rate of the firm may be a good indicator of the appropriate discount rate to apply to the firm in the future, when all of the following conditions hold true except:

(Multiple Choice)

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Question 49

Which of the following is not a problem with using a dividend-based valuation formula

(Multiple Choice)

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Question 50

Bridgetron An analyst wants to value the sum of the debt and equity capital of the firm and is provided with the following information: Total assets \2 5,675 Interest-Bearing Debt \1 8,525 Average pre-tax borrowing cost 9.25\% Common equity. Book value \8 ,950 Market value \3 4,956 Income tax Rate 35\% Market Equity Beta 1.05 Risk-free Rate 3.8\% Market Premium 5.7\% An analyst wants to value the common shareholders' equity of Bridgetron, compute the relevant cost of capital that should be used.

(Essay)

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Question 51

Returns on systematic risk-free securities (like U.S. Treasury securities) should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?

(Multiple Choice)

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Question 52

Explain the theory behind the dividends valuation approach. Why are dividends value-relevant to common equity shareholders?

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements. What are the three elements that the analyst needs to measure?

For each of the following companies, determine the total dividends paid to common equity holders in order to value the firm: (amounts in thousands) Dividends Paid to Common Shareholders \ 124 \2 ,134 \3 25 Common Stock Repurchases \ 412 \ 140 \ 1,247 Common Stock Issued \9 5 \1 ,985 \1 45

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.

Firm-specific factors that increase the firm's nondiversifiable risk include all of the following except:

The historical discount rate of the firm may be a good indicator of the appropriate discount rate to apply to the firm in the future, when all of the following conditions hold true except:

Which of the following is not a problem with using a dividend-based valuation formula

Returns on systematic risk-free securities (like U.S. Treasury securities) should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Explain the theory behind the dividends valuation approach. Why are dividends value-relevant to common equity shareholders?

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements. What are the three elements that the analyst needs to measure?

For each of the following companies, determine the total dividends paid to common equity holders in order to value the firm: (amounts in thousands) Dividends Paid to Common Shareholders \ 124 \2 ,134 \3 25 Common Stock Repurchases \ 412 \ 140 \ 1,247 Common Stock Issued \9 5 \1 ,985 \1 45

One criticism in using the CAPM to calculate the cost of equity capital is that ______________________________ and the __________________________________________________ are quite sensitive to the time period and methodology used in their computation.

Firm-specific factors that increase the firm's nondiversifiable risk include all of the following except:

The historical discount rate of the firm may be a good indicator of the appropriate discount rate to apply to the firm in the future, when all of the following conditions hold true except:

Which of the following is not a problem with using a dividend-based valuation formula

Returns on systematic risk-free securities (like U.S. Treasury securities) should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.