Question Details

(Solution Download) 1)Healthy Foods just paid its annual dividend of 1.45 a share. The firm recently announced that all


 

 

 

 

 

 

 

 

 

 

 

 

 

 

1)Healthy Foods just paid its annual dividend of 1.45 a share.

 

The firm recently announced that all futures dividends will be

 

increased by 2.8 percent annually? What is one share of this stock

 

worth to you if you require a 14 percent rate of return?

 

12.56

 

12.95

 

13.31

 

13.68

 

14.07

 

2)Managers at firm y believe that project x will reduce the

 

Betas of the firms common stock. Currently the opportunity cost of

 

capital for the firm is 8%. The discount rate that managers should

 

use to evaluate project x should be less than 8%

 

True

 

False

 

3)Diversifying a portfolio across various sectors and industries

 

might do more than one of the following. However, the

 

diversification must do which of the following?

 

Increase the expected risk premium

 

Reduce the beta of the portfolio to zero

 

Increase the securityA????1s risk premium

 

Reduce the portfolioA????1s systematic risk level

 

Reduce the portfolioA????1s unique risk

 

4)A firm has a cost of equity of 13 percent, accost of preferred

 

of 11 percent, and an after-tax cost of debt of 6 percent. Given

 

this, which one of the following will increase the firms weighted

 

average cost of capital?

 

Increase the firms tax rate

 

Issuing new bonds at par

 

Redeeming shares of common stock

 

Increasing the firms beta

 

5)If the cost of equity capital is positively correlated with a

 

firms Beta then which firm has a higher cost of equity (Use Yahoo

 

finance as your source for Beta).

 

General Mills

 

Microsoft

 

apple

 

kraft

 

6)An increase in the rate of return in a recessionary

 

economy

 

An increase in the probability of an economic boom

 

A decrease in the probability of a recession occurring

 

A decrease in the probability of an economic boom

 

An increase in the rate of return for a normal economy

 

7)Which one of the following portfolios will have a beta

 

zero?

 

A portfolio that is equally as risky as the overall market

 

A portfolio that consists of a single stock

 

A portfolio comprised solely of U.S. Treasury bills

 

A portfolio with a zero variance o returns

 

No portfolio can have a beta of zero

 

 

 

 

 

 

 

 

 

 

8)Ted is trying to decide what cost of capital he should assign

 

to a project. Which one of the following should be his primary

 

consideration in this decision?

 

Amount of debt used to finance the project

 

Use, or lack thereof, of preferred stock to finance the

 

project

 

Mix of funds used to finance the project

 

Risk level of the project

 

Length of the projectA????1s life

 

9)The common stock of modern interiors has a beta of 1.61 and a

 

standard deviation of 27.4 percent. The market rate of return is

 

13.2 percent and the risk free rate is 4.8 percent. What is the

 

cost of equity for this firm?

 

18.32

 

19.97

 

21.08

 

24.40

 

26.05

 

10)Which one of the following is most apt to cause a wise

 

manager to increase a project cost of capital? Assume the firm is

 

levered

 

Management decided to issue new stock to finance the project

 

The initial cash outlay requirement is reduced

 

She learns the project is risker than previously

 

The after tax cost of debt just decreased

 

The project life is shortened.

 

11)GRUBHUB common stock was offered to the public at 26 per

 

share on April 14,2014

 

True

 

false

 


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