Finance 201 Essay
June 29th, 2012
Circle the best answer for each of the following.
1. Investor activity and the impact of that activity on expected returns ensures that ___________.
a. all assets will have the same degree of systematic risk
b. each firm’s reward to risk ratio will be based on a different risk free rate of return
c. systematic risk can be diversified away
d. assets in a well organized, active market, will have the same reward to risk ratio
e. all assets will have the same risk premium
2. Unsystematic risk is also known as ___________.
a. total risk
b. systematic risk
c. diversifiable or firm specific risk
d. non-diversifiable risk
e. specific risk
3. …show more content…
b. Maximizing the value of the firm
c. Minimizing the cost of capital
d. Maximizing the sum of debt and equity
e. Maximizing the likelihood of long-term survival
8. Calculation of the weighted average cost of capital requires all of the following EXCEPT _______________.
a. determination of the total market value of a firm's debt by determining the number of bonds outstanding and the current par value per bond
b. determination of the market value of bonds outstanding relative to total market value of the firm
c. determination of the corporate tax rate
d. determination of the current market value of a firm's equity by finding the total number of shares and the market value per share
e. determination of the market value of equity outstanding relative to total market value of the firm
9. The cost of capital in a firm that has both debt and equity __________.
a. is what a firm must earn on a project to compensate investors for the use of their capital
b. is independent of the firm’s tax rate
c. is made up of only of the cost of equity
d. is also known as the internal rate of return
e. will be the same for its different divisions
10. Topstone Industries' preferred stock pays an annual dividend of $4.00 per share. When issued, the shares sold for their par value of $100 per share. What is the cost of preferred stock if the current price is $125 per share?