1.Senbet Ventures is considering starting
a new company to produce stereos. The sales price would be set at 1.5 times the
variable cost per unit; the VC/unit is estimated to be $2.50; and fixed costs
are estimated at $120,000. What sales volume would be required in order to
break even, i.e., to have an EBIT of zero for the stereo business?(Points : 2)
86,640
91,200
96,000
100,800
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Question
2. 2.O'Brien Inc. has the following data: rRF =
5.00%; RPM = 6.00%; and b = 1.05. What is the firm's cost of common from
retained earnings based on the CAPM? (Points : 2)
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11.30%
11.64%
11.99%
12.35%
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Question
3. 3.Teall
Development Company hired you as a consultant to help them estimate its
cost of capital. You have been provided with the following data: D1 =
$1.45; P0 = $22.50; and g = 6.50% (constant). Based on the DCF approach,
what is the cost of common from retained earnings? (Points : 2)
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11.10%
11.68%
12.30%
12.94%
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Question
4. 4.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)
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7.81%
8.22%
8.65%
9.10%
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Question
5. 5.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)
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9.42%
9.91%
10.44%
10.96%
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Question
6. 6.When working with the CAPM, which of the following
factors can be determined with the most precision? (Points : 2)
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The market risk premium (RPM).
The beta coefficient, bi, of a relatively
safe stock.
The most appropriate risk-free rate, rRF.
The expected rate of return on the
market, rM.
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Question
7. 7.Which of the following statements is CORRECT?
(Points : 2)
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The internal rate of return method
(IRR) is generally regarded by academics as being the best single method for
evaluating capital budgeting projects.
The payback method is generally regarded
by academics as being the best single method for evaluating capital budgeting
projects.
The discounted payback method is
generally regarded by academics as being the best single method for
evaluating capital budgeting projects.
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
8. 8.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)
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True
False
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Question
9. 9.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)
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The longer a project’s payback
period, the more desirable the project is normally considered to be by this
criterion.
One drawback of the regular payback for
evaluating projects is that this method does not properly account for the
time value of money.
If a project’s payback is positive, then
the project should be rejected because it must have a negative NPV.
The regular payback ignores cash flows
beyond the payback period, but the discounted payback method overcomes this
problem.
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Question 10. 10.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)
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Long-term debt.
Accounts payable.
Retained earnings.
Common stock.
Solution: Kaplan Gb550 unit 5 quiz