罗斯公司理财题库全集.docx

罗斯公司理财题库全集.docxChapter 13 Risk, Cost of Capital, and Capital BudgetingAnswer Key
Multiple Choice Questions
1. The weighted average of the firm's costs of equity, preferred stock, and after tax debt is the:
reward to risk ratio for the firm.
expected capital gains yield for the stock.
expected capital gains yield for the firm.
portfolio beta for the firm.
weighted average cost of capital (WACC).
Difficulty level: Easy
Topic: WACC
Type: DEFINITIONS
2. If the CAPM is used to estimate the cost of equity capital, the expected excess market return is equal to the:
return on the stock minus the risk-free rate.
difference between the return on the market and the risk-free rate.
beta times the market risk premium.
beta times the risk-free rate.
market rate of return.
Difficulty level: Easy
Topic: CAPM
Type: DEFINITIONS
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The best fit line of a pairwise plot of the returns of the security against the market index returns is called the:
A. Security Market Line.
B. Capital Market Line.
C. characteristic line.
D. risk line.
E. None of the above.
Difficulty level: Medium
Topic: CHARACTERISTIC LINE
Type: DEFINITIONS
The use of debt is called: A. operating leverage.
B. production leverage.
C. financial leverage.
D. total asset turnover risk.
E. business risk.
Difficulty level: Medium
Topic: USE OF DEBT
Type: DEFINITIONS
5. The weighted average cost of capital for a firm is the:
discount rate which the firm should apply to all of the projects it undertakes.
overall rate which the firm must earn on its existing assets to maintain the value of its stock.
rate the firm should expect to pay on its next bond issue.
maximum rate which the firm should require on any projects it undertakes.
rate of return that the firm's preferred stockholders should expect to earn over the long term.
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