Question 1

A consequence for a company that uses a single discount rate to evaluate projects is that:

Accepted Answer

A) high systematic risk divisions will find it hard to have their projects accepted. 
B) low systematic risk divisions will find it easy to have their projects accepted. 
C) high systematic risk divisions are likely to stagnate and even close down. 
D) the systematic risk of the company will drift upward over time. 
A) high systematic risk divisions will find it hard to have their projects accepted. 
B) low systematic risk divisions will find it easy to have their projects accepted. 
C) high systematic risk divisions are likely to stagnate and even close down. 
D) the systematic risk of the company will drift upward over time.

Question 2

When using the CAPM to estimate the cost of equity for evaluation of investment proposals,the appropriate substitute for the risk-free rate of interest is:

Accepted Answer

A) the yield on 10-year government bonds. 
B) the yield on three-year government bonds. 
C) the yield on 90-day treasury notes. 
D) the yield on a government security whose term to maturity matches the life of the proposed project. 
A) the yield on 10-year government bonds. 
B) the yield on three-year government bonds. 
C) the yield on 90-day treasury notes. 
D) the yield on a government security whose term to maturity matches the life of the proposed project.

Question 3

A _________ is a company that operates almost entirely in only one industry or line of business.

Accepted Answer

The answer of A _________ is a company that operates...

Question 4

Assume that Expansion Ltd is a diversified company that is considering an expansion project in a mining division.The company has a target debt-equity ratio of 1:2 and this ratio will not be affected by the new project.The company's manager has identified Dig-it-out Ltd as a company with the same business risk as the new project (equity beta of 1.5).Dig-it-out has a debt-equity ratio of 1:3.What is the beta estimate of Expansion Ltd?

Accepted Answer

A) 1.69 
B) 1.12 
C) 1.5 
D) 1.75 
A) 1.69 
B) 1.12 
C) 1.5 
D) 1.75

Question 5

What is the effective annual interest rate for a bank overdraft with an interest rate of 15% p.a.paid twice a year?

Accepted Answer

A) 15% 
B) 7.5% 
C) 16.4% 
D) 15.6% 
A) 15% 
B) 7.5% 
C) 16.4% 
D) 15.6%

Question 6

During the year,Success Ltd shares have increased from $8 to $9 and shareholders received a final dividend of 50 cents per share,fully franked at the company tax rate of 30 per cent.Calculate first the conventional rate of return and second,the dividend yield (using the beginning of the year share price)on Success shares.

Accepted Answer

A) 18.75% and 6.25%. 
B) 15.18% and 5.5%. 
C) 18.75% and 5.5%. 
D) 15.18% and 6.25%. 
A) 18.75% and 6.25%. 
B) 15.18% and 5.5%. 
C) 18.75% and 5.5%. 
D) 15.18% and 6.25%.

Question 7

Which of the following statements about the risk-adjusted discount rate approach and the certainty equivalent approach to project evaluation is most correct?

Accepted Answer

A) NPVs will differ under either method according to the 'risk adjustment factor'. 
B) NPVs should be the same under either approach. 
C) NPVs are generally higher using the 'risk-adjusted discount rate' approach. 
D) NPVs are generally lower using the 'risk-adjusted discount rate' approach. 
A) NPVs will differ under either method according to the 'risk adjustment factor'. 
B) NPVs should be the same under either approach. 
C) NPVs are generally higher using the 'risk-adjusted discount rate' approach. 
D) NPVs are generally lower using the 'risk-adjusted discount rate' approach.

A consequence for a company that uses a single discount rate to evaluate projects is that:

When using the CAPM to estimate the cost of equity for evaluation of investment proposals,the appropriate substitute for the risk-free rate of interest is:

A _________ is a company that operates almost entirely in only one industry or line of business.

What is the effective annual interest rate for a bank overdraft with an interest rate of 15% p.a.paid twice a year?

Which of the following statements about the risk-adjusted discount rate approach and the certainty equivalent approach to project evaluation is most correct?

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters

Exam 14: The Cost of Capital and Taxation Issues in Project Evaluation

A consequence for a company that uses a single discount rate to evaluate projects is that:

When using the CAPM to estimate the cost of equity for evaluation of investment proposals,the appropriate substitute for the risk-free rate of interest is:

A _________ is a company that operates almost entirely in only one industry or line of business.

What is the effective annual interest rate for a bank overdraft with an interest rate of 15% p.a.paid twice a year?

Which of the following statements about the risk-adjusted discount rate approach and the certainty equivalent approach to project evaluation is most correct?

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Payout Policy

Principles of Capital Structure

Capital Structure Decisions

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters