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- 2. What are flotation costs? 3. How is cost of common equity computed for no growth stock? for constant growth stock? 4.What is a dividend yield? 5. Define the following terms used in Capital Asset Pricing Model (CAPM) to compute for cost of equity: a. Risk-free rate b. Stock's Beta Coefficient C. Market risk premium 6. How is cost of equity under Bond Yield Plus Risk Premium Approach computed? 7. How is weighted average cost of capital (WACC) computed?Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mixAccording to Modigliani & Miller M Proposition II (MM Il), as a firm's debt-equity ratio decreases, what happens to the required rate of return on equity? Briefly explain including the key aspect of MM II.
- Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset SelectionWhich statement is false regarding the Capital Asset Pricing Model? A. The beta coefficient of a stock is constant. B. The risk free rate is usually based on the treasury bill yield. C. Market risk premium is the difference between market return and the risk free rate. D. The cost of retained earnings is equal to the cost of new shares issued.1. Which of the following is not a component used in calculating the cost of capital? A. The cost of short-term debt. B. The cost of common stock. C. The cost of long-term debt. D. The cost of retained earnings. 2. Which of the following statements about cost of capital is false? A. The overall cost of capital is the minimum rate a firm must earn on all investments to cover capital costs. B. The overall cost of capital is the cost of the firm's equity capital at which the market value of the firm will remain unchanged. C. Cost of capital is based on what the company pays for its capital, not the return earned on the capital employed. D. The overall cost of capital is the weighted average cost of the various debt and equity components in a firm's capital structure.
- 3.Explain the difference between the following concepts in finance: a) Capital market & money market b)Debt finance& Equity finance c)Systematic risk & unsystematic risk d)Coupon rate of security and Its yield to maturitywhich one is correct please confirm? QUESTION 27 All of the following methods may be used to determine the cost of equity capital (k e) for a non-dividend-paying stock EXCEPT ____. a. the risk premium on debt approach b. comparing with similar dividend-paying stocks in the industry c. the Capital Asset Pricing Model approach d. the simulation with growth expectations approachThe capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.
- Explain the effect of D/E on asset returns, equity returns (assuming that cost of debt is not affected), asset beta and equity beta (assuming that debt beta is zero). Should an investor choose to invest in a stock of a company with high or low D/E, or why expected returns on these stocks are equivalent, although they are not equal?a. What is the relationship between the expected return of a stock and its fair expected return? When is a stock underpriced, overpriced, or fairly priced? b. Explain what happens to the firm’s cost of equity, cost of debt, and cost of capital when the firm increases the amount of debt in its capital structure. Assume all Modigliani and Miller assumptions hold and that there are no taxes. c. How can we use the internal rate of return to evaluate whether we should pursue a specific project? Should we pursue a project when the cost of capital is higher than the internal rate of return?Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its estimated value of operations? What is its estimated total corporate value? (This is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?
