Corporate Finance Final Quiz

One year ago, you purchased 100 shares of Best Wings stock at a price of $38.19 a share. The company pays an annual dividend of $.46 per share. Today, you sold for the shares for $37.92 a share. What is your total percentage return on this investment? -2.62 percent -1.93 percent -2.72 percent -1.08 percent -.50 percent

.50 percent

Which one of the following is the best example of a diversifiable risk? -Interest rates increase -Energy costs increase -Core inflation increases -A firm's sales decrease -Taxes decrease

A firm's sales decrease

Which one of the following correctly describes the dividend yield? -Next year's annual dividend divided by today's stock price -This year's annual dividend divided by today's stock price -This year's annual dividend divided by next year's expected stock price -Next year's annual dividend divided by this year's annual dividend -The increase in next year's dividend over this year's dividend divided by this year's dividend

Next year's annual dividend divided by today's stock price

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following? -Portfolio return -Portfolio weight -Degree of risk -Price-earnings ratio -Index value

Portfolio weight

The return earned in an average year over a multiyear period is called the _____ average return. -arithmetic -standard -variant -geometric -real

arithmetic

To convince investors to accept greater volatility, you must: -decrease the risk premium. -increase the risk premium. -decrease the real return. -decrease the risk-free rate. -increase the risk-free rate.

increase the risk premium

The expected risk premium on a stock is equal to the expected return on the stock minus the: -expected market rate of return. -risk-free rate. -inflation rate. -standard deviation. -variance.

risk-free rate

The market risk premium is computed by: -adding the risk-free rate of return to the inflation rate. -adding the risk-free rate of return to the market rate of return. -subtracting the risk-free rate of return from the inflation rate. -subtracting the risk-free rate of return from the market rate of return. -multiplying the risk-free rate of return by a beta of 1.0.

subtracting the risk-free rate of return from the market rate of return

The net present value of a project will increase if: -the required rate of return increases. -the initial capital requirement increases. -some of the cash inflows are deferred until a later year. -the aftertax salvage value of the fixed assets increases. -the final cash inflow decreases.

the aftertax salvage value of the fixed assets increases

If a project has a net present value equal to zero, then: -the total of the cash inflows must equal the initial cost of the project. -the project earns a return exactly equal to the discount rate. -a decrease in the project's initial cost will cause the project to have a negative NPV. -any delay in receiving the projected cash inflows will cause the project to have a positive NPV. -the project's PI must also be equal to zero

the project earns a return exactly equal to the discount rate

The primary advantage of using the dividend growth model to estimate a company's cost of equity is: -the ability to apply either current or future tax rates. -the model's applicability to all corporations. -is the model's consideration of risk. -the stability of the computed cost of equity over time. -the simplicity of the model.

the simplicity of the model

The average of a company's cost of equity, cost of preferred, and aftertax cost of debt that is weighted based on the company's capital structure is called the: -reward-to-risk ratio. -weighted capital gains rate. -structured cost of capital. -subjective cost of capital. -weighted average cost of capital.

weighted average cost of capital

Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security's systematic risk? -Capital asset pricing model -Time value of money equation -Unsystematic risk equation -Market performance equation -Expected risk formula

Capital asset pricing model

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith Inc. What is the return that these individuals require on this investment called? -Dividend yield -Cost of equity -Capital gains yield -Cost of capital -Income return

Cost of equity

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return? -Risk premium -Geometric average return -Arithmetic average return -Standard deviation -Variance

Risk premium

Which one of the following earned the highest risk premium over the period 1926-2016? -Long-term corporate bonds -U.S. Treasury bills -Small-company stocks -Large-company stocks -Long-term government bonds

Small-company stocks

Which one of the following is a risk that applies to most securities? -Unsystematic -Diversifiable -Systematic -Asset-specific -Industry

Systematic

The rate of return on which type of security is normally used as the risk-free rate of return? -Long-term Treasury bonds -Long-term corporate bonds -Treasury bills -Intermediate-term Treasury bonds -Intermediate-term corporate bonds

Treasury bills

Which one of the following had the least volatile annual returns over the period of 1926-2016? -Large-company stocks -Inflation -Long-term corporate bonds -U.S. Treasury bills -Intermediate-term government bonds

U.S. Treasury bills

Which one of the following is the primary determinant of a firm's cost of capital? -Debt-equity ratio of any new funds raised -Marginal tax rate -Pretax cost of equity -Aftertax cost of equity -Use of the funds raised

Use of the funds raised

The systematic risk of the market is measured by a: -beta of 1. -beta of 0. -standard deviation of 1. -standard deviation of 0. -variance of 1.

beta of 1

The internal rate of return is defined as the: -maximum rate of return a firm expects to earn on a project. -rate of return a project will generate if the project is financed solely with internal funds. -discount rate that equates the net cash inflows of a project to zero. -discount rate which causes the net present value of a project to equal zero. -discount rate that causes the profitability index for a project to equal zero.

discount rate which causes the net present value of a project to equal zero