Week 4 practice quiz

Week 4 Practice Quiz

Return to Assessment List


375592 Week 4 Practice Q

Part 1 of 1 - 6.0/ 10.0 Points

Question 1 of 10
0.0/ 1.0 Points
Using the company cost of capital to evaluate a project is:
I) Always correct
II) Always incorrect
III) Correct for projects that are about as risky as the average of the firm's other assets

A.I only

B.II only


C.III only


D.I and III only


Answer Key: C

Question 2 of 10
0.0/ 1.0 Points
Which of the following type of projects has average risk?
A.Speculation ventures


B.New products


C.Expansion of existing business


D.Cost improvement


Answer Key: C

Question 3 of 10
1.0/ 1.0 Points
The market value of Cable Company's equity is $60 million, and the market value of its risk-free debt is
$40 million. If the required rate of return on the equity is 15% and that on the debt is 5%, calculate the
company's cost of capital. (Assume no taxes.)

A.15%


B.10%


C.11%


D.None of the above


Answer Key: C
Feedback: Company cost of capital = (40/100)(5) + (60/100)(15) = 11%

Question 4 of 10
1.0/ 1.0 Points
The hurdle rate for capital budgeting decisions is:

A.The cost of capital


B.The cost of debt


C.The cost of equity


D.All of the above


Answer Key: A

Question 5 of 10
1.0/ 1.0 Points
The market value of XYZ Corporation's common stock is 40 million and the market value of the risk-free
debt is 60 million. The beta of the company's common stock is 0.8, and the expected market risk
premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.)

A.9.2%


B.14%


C.8.1%


D.None of the above


Answer Key: A
Feedback: rE = 6 + 0.8(10) = 14%; rD = 5%; Cost of capital = (0.6)(6) + (0.4) (14) = 9.2%

Question 6 of 10
1.0/ 1.0 Points
On a graph with common stock returns on the Y- axis and market returns on the X-axis, the slope of the
regression line represents the:

A.Alpha


B.Beta


C.R-squared


D.Adjusted beta


Answer Key: B

Question 7 of 10
0.0/ 1.0 Points
Generally, postaudits are conducted for large projects:
A.shortly after the completion of the project


B.after several years after the completion of the project


C.shortly after the project has begun to operate


D.well before the start of the project


Answer Key: C

Question 8 of 10
1.0/ 1.0 Points
You are given the following data for year-1.
Revenue = $43;
Total costs = $30;
Depreciation = $3;
Tax rate = 30%.

Calculate the operating cash flow for the project for year-1.

A.$7


B.$10


C.$13


D.None of the above


Answer Key: B
Feedback: Revenue = (43 - 30 - 3) = 10; Tax = 10(0.3) = 3; Net Profit = 10 - 3 = 7; Operating cash flow
7 + 3 = 10

Question 9 of 10
1.0/ 1.0 Points
The following are drawbacks of sensitivity analysis except:

A.it provides ambiguous results.


B.underlying variables are likely to be interrelated.


C.it provides additional information about the project that is useful.


D.all of the above statements are drawbacks of sensitivity analysis.


Answer Key: C

Question 10 of 10
0.0/ 1.0 Points
The accounting break-even point occurs when:
A.the total revenue line cuts the fixed cost line


B.the present value of inflows line cuts the present value of outflows line


C.the total revenue line cuts the total cost line


D.none of the above


Answer Key: C