8803 Exam 1 Questions And Answers Fully Solved

Consider the financial data for US-baed firm X,Y and Z. Which firm has the lowest cost of capital? Firm X: Beta = 1.0 Debt Basis Points (Credit default premium) - 500 % debt in capital structure - 90% EPS - $1.23 Firm Y: Beta = .15 Debt Basis Points (Credit default premium) - 303 % debt in capital structure - 60% EPS - $.79 Firm Z: Beta = 2.0 Debt Basis Points (Credit default premium) - 100 % debt in capital structure - 5% EPS - $3.23 {Ans: Firm Y}Compared to Junk Bonds (CCC), Investment Grade Bonds (AAA) typically offer ___ yield because they are ___risky {Ans: lower, less}Which one of these applies to the dividend growth model of stock valuation? {Ans: The growth rate must be less than the discount rate}(T/F) To create economic value, it's only necessary that a firm create positive accounting profits {Ans: False}Consider the financial data for US-baed firm X,Y and Z. Which firm has the highest cost of capital? Firm X: Beta = 1.0 Debt Basis Points (Credit default premium) - 500 % debt in capital structure - 90% EPS - $1.23 Firm Y: Beta = .15 Debt Basis Points