Exam 12: Estimating the Cost of Capital

Use the following information to answer the question(s)below. Suppose all possible investment opportunities in the world are limited to the four stocks listed in the table below: -Suppose that you are holding a market portfolio and you have invested $18,000 in Taggart Transcontinental.The number of shares of Wyatt Oil that you hold is closest to:

In a world with taxes,which of the following is the rate we should use to evaluate an all-equity financed project with the same risk as the firm?

A firm's unlevered (asset)beta is:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. -The Market's average historical excess return is closest to:

Use the following information to answer the question(s)below. Suppose all possible investment opportunities in the world are limited to the four stocks listed in the table below: -The weight on Wyatt Oil stock in the market portfolio is closest to:

Which of the following statements is FALSE?

Luther Industries has a market capitalization of $23 billion,no debt,and $4 billion in cash.If Luther's estimated equity beta is 1.32,then the beta of Luther's underlying business enterprise is closest to:

Which of the following is NOT considered a difficulty with regards to the CAPM?

Use the following information to answer the question(s) below Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. -The risk premium for "Meenie" is closest to:

Use the following information to answer the question(s)below. Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 21%. -Luther's after-tax debt cost of capital is closest to:

Which of the following statements is FALSE?

Use the following information to answer the question(s) below Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. -Which firm has the least market risk?

Use the following information to answer the question(s)below. Suppose all possible investment opportunities in the world are limited to the four stocks listed in the table below: -Suppose that you have invested $30,000 in the market portfolio.Then the number of shares of Wyatt Oil that you hold is closest to:

Rearden Metal has a bond issue outstanding with ten years to maturity,a yield to maturity of 8.6%,and a B rating.The bondholders expected loss rate in the event of default is 50%.Assuming the economy is in recession,then the expected return on Rearden Metal's debt is closest to:

Use the following information to answer the question(s)below. Suppose all possible investment opportunities in the world are limited to the four stocks listed in the table below: -Suppose that you are holding a market portfolio and you have invested $9000 in Rearden Metal.The amount that you have invested in Taggart Transcontinental is closest to:

Use the following information to answer the question(s)below. The risk-free rate of interest is 3% and the market risk premium is 5%. -The cost of capital for the oil exploration division is closest to:

Use the following information to answer the question(s)below. Suppose the market consists only of Merck (MRK)and Boeing (BA).Merck stock is trading for $36.70 per share with 2.11 billion shares outstanding while Boeing has 697.5 million shares outstanding and a market capitalization of $38.223 billion.Assume that you hold the market portfolio. -Merck's market capitalization is closest to:

Use the following information to answer the question(s)below. Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 21%. -Luther's weighted average cost of capital is closest to:

Use the following information to answer the question(s)below.Consider the following information regarding corporate bonds: -Your estimate of the debt beta for Taggart Transcontinental would be: