Exam 12: Risk, Cost of Capital, and Valuation

Leo's Cars has a beta of 1.1 and its R_WACC is 13.6 percent.The market risk premium is 7.2 percent,and the risk-free rate is 2.3 percent.The firm's cash flow at Time 4 is $28,800 with a growth rate of 2.1 percent.What is the value of the firm at Time 4?

NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows of $12.5 million for 5 years.Debt represents 44 percent of the capital structure.The cost of equity is 13.7 percent,the pretax cost of debt is 8.5 percent,and the tax rate is 34 percent.What is the company's WACC?

Upper Roads is an all-equity financed firm.The beta is 0.89,the market risk premium is 7.2 percent,and the tax rate is 34 percent.The firm just issued its annual dividend of $1.04 per share and announced that future dividends will increase by 3 percent annually.The stock sells for $22 a share.What is the cost of equity?

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

Which one of these is a commonly used multiple for overall company valuation?

The Bird Carver has a target WACC of 9.5 percent.The firm has an aftertax cost of debt of 5.4 percent and a cost of equity of 14 percent.What debt-to-equity ratio is needed for the firm to achieve its target WACC?

A stock portfolio consists of 27 percent Stock A,38 percent Stock B,and the remainder is invested in Stock C.The security betas are 1.09,0.84,and 1.33 for Stocks A,B,and C,respectively.What is the portfolio beta?

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

The cost of preferred stock

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

Finally There! has 1,500 bonds outstanding with a $1,000 par value,a yield to maturity of 6.4 percent,and a market price of $989 each.The firm also has 74,000 shares of common stock outstanding at a price per share of $35 and a beta of 1.08.The risk-free rate is 2 percent,the market risk premium is 7 percent,and the tax rate is 34 percent.What is the company's WACC?

A levered firm has a debt-to-equity ratio of 0.38 and an equity beta of 1.42.What would be the beta of the firm if it switched to an all-equity financial structure?

Assume an all-equity company is considering expanding its current operations by increasing the size of its warehouse.The discount rate used for this project should be the

A project has an internal rate of return of 11.76 percent.The company beta is 1.22,and the pure play beta is 1.14.The market rate of return is 11.8 percent,the tax rate is 35 percent,and the risk-free rate is 3.3 percent.Should this project be accepted according to the CAPM if the firm is all-equity financed? Why or why not?

Winter's prefers to finance its capital spending with 35 percent debt,25 percent internal equity,and 40 percent external equity.The floatation cost of debt is 5.2 percent while it is 9.1 percent for equity.What is the weighted average flotation cost?

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

A firm has an EBIT of $41,300,depreciation of $1,200,interest of $850,and taxes of $210.The EBITDA multiple is 9.6.What is the value of the firm?

Which one of these statements is true?

Metal Roofs has an equity beta of 1.47,a capital structure with three parts of debt for every five parts of equity,and a zero tax rate.What is its asset beta?

The beta of a security provides an estimate of the