Wk 4 - Apply: Homework FIN370/T ECONOMICS & FAINANCE LATEST EDITION 2024/25 RATED GRADE A+

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Med Tech Corp. stock was $50.95 per share at the end of last year. Since then, it paid a $0.45 per share dividend. The stock price is currently $62.50. If you owned 500 shares of Med Tech, what was yo... ur percent return? 23.55 percent When calculating the weighted average cost of capital, weights are based on market values Which of these completes this statement to make it true? The constant growth model is only going to be appropriate for the limited number of stocks that just happen to expect constant growth Which of the following is a true statement? A. To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on the firm's existing debt. B. To estimate the before-tax cost of debt, we need to solve for the Yield to Call (YTC) on the firm's existing debt. C. To estimate the before-tax cost of debt, we use the coupon rate on the firm's existing debt. D. To estimate the before-tax cost of debt, we use the average rate on the firm's existing debt. To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on the firm's existing debt. Which of the following is a true statement regarding the appropriate tax rate to be used in the WACC? One would use the weighted average of the marginal tax rates that would have been paid on the taxable income shielded by the interest deduction Which of these statements is true regarding calculating weights for WACC? If we are calculating WACC for the firm, then equity, preferred stock and debt would be the entire market value of each source of capital. Which of the following statements is true? A. If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital. B. If the new project is riskier than the firm's existing projects, then it should be charged a lower cost of capital. C. If the new project is riskier than the firm's existing projects, then it should be charged the firm's cost of capital. D. The new project's risk is not a factor in determining its cost of capital. If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital. Which of the following makes this a true statement? If the new project does significantly increase the firm's overall risk the increased risk will be borne disproportionately by common stockholders An average of which of the following will give a fairly accurate estimate of what a project's beta will be? proxy beta Which of the following makes this a true statement? Ideally, when searching for a beta for a new line of business All the answers make this a true statement This is an estimated WACC computed using some sort of proxy for the average equity risk of the projects in a particular division Divisional WACC Which of these statements is true regarding divisional WACC? Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta. An objective approach to calculating divisional WACCs would be done by computing the average beta per division, using these figures for each division in the CAPM formula, and then constructing divisional WACCs. Which statement makes this a false statement? When a firm pays commissions to underwriting firms that float the issuance of new stock, the component cost will need to be integrated to figure project WACCs. This is a principle of capital budgeting which states that the calculations of cash flows should remain independent of financing. separation principle Which of these makes this a true statement? The WACC formula uses the after-tax costs of capital to compute the firm's weighted average cost of debt financing. Which of these makes this a true statement? When determining the appropriate weights used in calculating a WACC, it should reflect the relative sizes of the total market capitalizations for each kind of security that the firm issues. These are fees paid by firms to investment bankers for issuing new securities. flotation costs Which of the following statements is correct? A. The weighted average cost of capital is calculated on a before-tax basis. B. An increase in the market risk premium is likely to increase the weighted average cost of capital. C. The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation. D. All of these statements are correct. An increase in the market risk premium is likely to increase the weighted average cost of capital. Which of the following statements is correct? A. If the risk-free rate increases, it will have no impact on the weighted average cost of capital. B. Investor returns are reduced when float costs increase, and therefore float costs reduce the weighted average cost of capital. C. The weighted average cost of capital is a historical cost. D. None of these statements is correct. None of these statements is correct. Which of the following will impact the cost of equity component in the weighted average cost of capital? all of these choices are correct. Which of the following will directly impact the cost of equity? Stock price Which of the following will directly impact the cost of debt? Coupon Rate An estimated WACC computed using some sort of proxy for the average equity risk of the projects in a particular business unit is known as the ____________. Divisional WACC The ___________ approach to computing a divisional weighted average cost of capital (WACC) uses the average beta of projects in each division to calculate the WACC. objective The ____________ approach to computing a divisional weighted average cost of capital (WACC) requires only that WACCs for "risky" and "relatively safe" divisions be adjusted. subjective Which of the following is a responsibility of employees under OSHA? Comply with all occupational safety and health standards Which of the following has occurred in recent years in attempts to improve occupational health and safety? Organizations have focused more on prevention and less on compensation. What is the most effective way to prevent accidents and injuries at work? Provide safety programs. Which of the following is the definition of workplace violence? Physical assaults and threats of assault directed toward people at work Which of the following has occurred throughout the 21st century in the area of workplace health and safety? Increased rates of job burnout and stress Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your dollar return and percent return? −$2,301, −14.16 percent Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 14 percent and standard deviation of 30 percent. The average return and standard deviation of Whole Mart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent. Fruit Fly, Night Ryder, Whole Mart FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return? $4,110, 12.08 percent Rx Corp. stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend last year. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return? 5.83 percent Sharif's portfolio generated returns of 12 percent, 15 percent, −15 percent, 19 percent, and −12 percent over five years. What was his average return over this period? 3.8 percent Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent. Poker-R-Us, Idol Staff, Rail Haul Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent. Rail Haul, Idol Staff, Poker-R-Us Which of the following is an index that tracks 500 companies, which allows for a great deal of diversification? S&P 500 Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of 10 percent. The expected return and risk of portfolio Yellow are 13 percent and 10 percent; and for the Purple portfolio are 9 percent and 14 percent. Portfolio Yellow dominates Portfolio Blue Year-to-date, Company Y had earned a 7 percent return. During the same time period, Company R earned 9.25 percent and Company C earned −2.25 percent. If you have a portfolio made up of 35 percent Y, 40 percent R, and 25 percent C, what is your portfolio return? 5.5875 percent Which of the following is the reward investors require for taking risk? risk premium If the risk-free rate is 10 percent and the market risk premium is 4 percent, what is the required return for the market? 14 percent Compute the expected return given these three economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast Growth 0.3 40% Slow Growth 0.4 15% Recession 0.3 −15% 13.5 percent If the risk-free rate is 8 percent and the market risk premium is 2 percent, what is the required return for the market? 10% (required return = 8% + 2% = 10%) The annual return on the S&P 500 Index was 18.1 percent. The annual T-bill yield during the same period was 6.2 percent. What was the market risk premium during that year? 11.9% (average market risk premium = 18.1% - 6.2% = 11.9%) Which of these is the set of probabilities for all possible occurrences? Probability distribution If the NASDAQ stock market bubble peaked at 3,750, and two and a half years later it had fallen to 2,200, what would be the percentage decline? −41.33 percent You have a portfolio consisting of 20 percent Boeing (beta = 1.3) and 40 percent Hewlett-Packard (beta = 1.6) and 40 percent McDonald's stock (beta = 0.7). How much market risk does the portfolio have? This portfolio has 18 percent more risk than the general market. A company has a beta of 0.25. If the market return is expected to be 8 percent and the risk-free rate is 2 percent, what is the company's required return? 3.50 percent A company's current stock price is $22.00 and its most recent dividend was $0.75 per share. Since analysts estimate the company will have a 12 percent growth rate, what is its expected return? 15.82 percent ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for the next seven years. What is ABC's required return? 17.0 percent Apple's 9 percent annual coupon bond has 10 years until maturity and the bonds are selling in the market for $890. The firm's tax rate is 21 percent. What is the firm's after-tax cost of debt? 8.58 percent Katy Did Clothes has a $150 million ($1,000 face value) 15-year bond issue selling for 86 percent of par that carries a coupon rate of 8 percent, paid semiannually. What would be Katy Did's before-tax component cost of debt? 9.80 percent Uptown Inc. has preferred stock selling for 102 percent of par that pays a 6 percent annual coupon. What would be Uptown's component cost of preferred stock? 5.88 percent Town Crier has 10 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $28 per share, the preferred shares are selling for $15.50 per share, and the bonds are selling for 97 percent of par, what would be the weight used for debt in the computation of Town Crier's WACC? 3.02 percent When we adjust the WACC to reflect flotation costs, this approach raises each capital source's effective cost. Which of the following is correct? All of these choices are correct. WayCo stock was $75 per share at the end of last year. Since then, it paid a $3 per share dividend last year. The stock price is currently $70. If you owned 200 shares of WayCo what was your percent return? −2.67 percent TechNo stock was $25 per share at the end of last year. Since then, it paid a $1.50 per share dividend last year. The stock price is currently $23. If you owned 300 shares of TechNo, what was your percent return? −2 percent Which of the following is defined as the volatility of an investment, which includes firm specific risk as well as market risk? Total Risk Which of the following is another term for market risk? Nondiversifiable risk Which of the following statements is correct? A single stock has a lot of diversifiable risk. An investor owns $8,000 of Adobe Systems stock, $5,000 of Dow Chemical, and $3,000 of Office Depot. What are the portfolio weights of each stock? Adobe: 0.5, Dow Chemical: 0.32, Office Depot: 0.18 A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct? [Show More]

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