Finance : T/F , Multiple Choice

A typical measure for the risk-free rate of return is the short term AAA rated bond rate U.S treasury bill rate money market rate prime lending rate

U.s Treasury Bill rate

Which of the following types of risk is diversifiable? market risk unsystematic, or company-unique risk systematic risk betagenic, or ecocentric risk

unsysteatic, or company-unique risk

(T/F)If a project is acceptable using the net present value criteria, then it will also be acceptable under the less stringent criteria of the payback period

F

(T/F)The profitability index is the ratio of the company's net income (or profits) to the initial outlay or cost of a capital budgeting project.

F

(T/F) The benefits of diversification occur as long as the investments in a portfolio are not perfectly positively correlated.

T

(T/F)If a firm imposes a capital constraint on investment projects, the appropriate decision criterion is to select the set of projects that has the highest positive net present value subject to the capital constraint

T

(T/F)NPV is the most theoretically correct capital budgeting decision tool examined in the text.

T

A stock with a beta of 1 has systematic or market risk equal to the "typical" stock in the marketplace

T

Beta represents the average movement of a company's stock returns in response to a movement in the market's returns.

T

Higher flotation costs will result in all of the following EXCEPT A) higher cost of retained earnings. B) higher cost of common equity when new common shares are sold. C) higher weighted average cost of capital. D) higher after-tax cost of debt

higher cost of retained earnings

Cost of capital is A)a hurdle rate set by the board of directors. B) the average cost of the firm's assets. C) the rate of return that must be earned on additional investment if firm value is to remain unchanged. D) the coupon rate of debt

the rate of return that must be earned on additional investment if firm value is to remain unchanged.