Gb550 unit 5 quiz | Business & Finance homework help

1. Scanlon Inc.’s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 1.30. Based on the CAPM approach, what is the cost of common from retained earnings? (Points : 2)

      [removed] 9.67%
      [removed] 9.97%
      [removed] 10.28%
      [removed] 10.93%

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Question 2. 2. Tuttle Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that if a project’s expected NPV is negative, it should be rejected.
 
WACC:  11.00%
Year                 0                      1          2          3          4         
Cash flows       -$1,000            $350    $350    $350    $350 (Points : 2)

      [removed] $77.49
      [removed] $81.56
      [removed] $85.86
      [removed] $90.15

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Question 3. 3. Taggart Inc. is considering a project that has the following cash flow data. What is the project’s payback?
 
Year                 0                      1          2          3         
Cash flows       -$1,150            $500    $500    $500 (Points : 2)

      [removed] 1.86 years
      [removed] 2.07 years
      [removed] 2.30 years
      [removed] 2.53 years

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Question 4. 4. Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach? (Points : 2)

      [removed] 9.42%
      [removed] 9.91%
      [removed] 10.44%
      [removed] 10.96%

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Question 5. 5. A company’s perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm’s cost of preferred stock? (Points : 2)

      [removed] 7.81%
      [removed] 8.22%
      [removed] 8.65%
      [removed] 9.10%

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Question 6. 6. Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting? (Points : 2)

      [removed] Long-term debt.
      [removed] Accounts payable.
      [removed] Retained earnings.
      [removed] Common stock.

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Question 7. 7. No conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects’ cost of capital exceeds the rate at which the projects’ NPV profiles cross. (Points : 2)

      [removed] True
      [removed] False

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Question 8. 8. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. (Points : 2)

      [removed] A project’s NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC.
      [removed] The lower the WACC used to calculate a project’s NPV, the lower the calculated NPV will be.
      [removed] If a project’s NPV is less than zero, then its IRR must be less than the WACC.
      [removed] If a project’s NPV is greater than zero, then its IRR must be less than zero.

[removed][removed][removed][removed]

Question 9. 9. Which of the following statements is CORRECT? (Points : 2)

      [removed] The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
      [removed] The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
      [removed] The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
      [removed] The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

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Question 10. 10. Which of the following statements is CORRECT? (Points : 2)

      [removed] One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project’s full life.
      [removed] One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money.
      [removed] One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital.
      [removed] One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.

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