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D V Ratio Quiz

Which of the following types of projects is likely to have the lowest risk?

The hurdle rate for capital budgeting decisions is:

If you graph common stock returns on the Y axis and market returns on the X-axis, the slope of the regression line is:

A company has a cost of capital of 15%. However, it is introducing a new product that it considers to be a very risky endeavor. What can you say about the appropriate discount rate for the project?

A project has an expected risky cash flow of $1,000 in Year 1. The risk-free rate is 4%, the market rate of return is 12%, and the project's beta is 1.5. Calculate the certainty equivalent cash flow for Year 1.

A project has an expected cash flow of $300 in year 3. The risk-free rate is 5%, the market risk premium is 8% and the project's beta is 1.25. Calculate the certainty equivalent cash flow for year 3.

Which of the following type of projects has the highest risk?

The cost of capital for a firm is higher using book value than market values given that the firm has a book value D/V ratio of 20% and a market value D/V ratio of 40%.

What is the cost of capital for a firm with market value of debt of $20 million and market value of equity of $60 million, given a cost of equity at 12% and a cost of debt at 6%? Assume no taxes.

Distant cash flows are riskier; therefore, they should be discounted at a higher rate than earlier cash flows.

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