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Financial Reporting Study Set 2
Quiz 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
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Question 1
Multiple Choice
One rationale for using expected dividends in valuation is
Question 2
Multiple Choice
If a firm has a market beta of 0.9,is subject to an income tax rate of 35 percent,has a risk-free rate of 6 percent,a market risk premium of 7 percent,and has a market value of debt to market value of equity ratio of 60 percent,what does the market expect the firm to generate in terms of equity returns using CAPM?
Question 3
Multiple Choice
Which of the following is not a problem with using a dividend-based valuation formula
Question 4
Multiple Choice
Zonk Corp. The following data pertains to Zonk Corp.,a manufacturer of ball bearings (dollar amounts in millions) :
Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:
Question 5
Multiple Choice
Equity valuation models based on dividends,cash flows,and earnings have been the topic of many theoretical and empirical research studies in recent years.All of the following are true regarding these studies except:
Question 6
Multiple Choice
Zonk Corp. The following data pertains to Zonk Corp.,a manufacturer of ball bearings (dollar amounts in millions) :
Assume that Zonk is a potential leveraged buyout candidate.Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pretax borrowing cost of 14 percent and 30 percent common equity.Compute the revised equity beta for Zonk based on the new capital structure.
Question 7
Multiple Choice
When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?
Question 8
Multiple Choice
Zonk Corp. The following data pertains to Zonk Corp.,a manufacturer of ball bearings (dollar amounts in millions) :
Assume that Zonk is a potential leveraged buyout candidate.Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pre tax borrowing cost of 14 percent and 30 percent common equity.Compute the weighted average cost of capital for Zonk based on the new capital structure.
Question 9
Multiple Choice
Investors typically accept a lower risk-adjusted rate of return on debt capital than on equity capital because
Question 10
Short Answer
In theory,the value of a share of common equity is the present value of ____________________________________________________________. the expected future dividends
Question 11
Multiple Choice
Zonk Corp. The following data pertains to Zonk Corp.,a manufacturer of ball bearings (dollar amounts in millions) :
Assuming that riskless rate is 4.2% and the market premium is 6.2% calculate Zonk's cost of equity capital:
Question 12
Multiple Choice
Equity-based valuation models are based on all metrics except
Question 13
Multiple Choice
With respect to dividends and priority in liquidation,what has priority over common stock?
Question 14
Multiple Choice
Zonk Corp. The following data pertains to Zonk Corp.,a manufacturer of ball bearings (dollar amounts in millions) :
Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:
Question 15
Multiple Choice
Returns on systematic risk-free securities (like U.S.Treasury securities) should exhibit what type of correlation with returns on a diversified marketwide portfolio of stocks?