23. The total return on a stock comes from (2 points) a. dividend payments and c
ID: 1171254 • Letter: 2
Question
23. The total return on a stock comes from (2 points) a. dividend payments and changes in the stock price over the period you own it b. the stock's yield on its beta c interest payments d. the marginal tax rate on the company e. the due diligence value 24. Internal equity reflects a firm's ability to generate (2 points) a. bonds b. retained earnings c. new common stock d. efficient markets e. preferred stock 25. Investment analysts for Wall Street investment banks often calculate a company's target stock price (2 points) by using a. b. c. d. e. discounted payback (DPB) analysis discounted cash flow (DCF) analysis probability distribution matrices incidental cash flow (ICF) analysis beta standard deviation (BSD) analysis Optional Extra Credit Problems: You may recelve extra credit up to the polnts stated, which will be added to y final exam grade. Your total points on the final exam will count for 35% of the overall course grade. XCR1. Which of the following about weighted average cost of capital is correct? (check all that apply) (S poin WACC measures the after-tax cost of capital There is no cost to using retained earnings. Flotation costs can increase the weighted average cost of capital. Equity is always cheaper than debt. The cost of equity is a tax-deductible expense.Explanation / Answer
Answers:
23) A is the correct answer. Many companies pay dividends that radically change the total return. If it is cash dividends, the same is added to the total return. If it is stock dividend, then the value of the stock is added when it is sold.
24) B is the correct answer. Internal equity of the firm is reflected by its retained earnings. The more the company is able to maintain adequate firms, the more will be its equity internally.
25) B is the correct answer. This is the more respected approach. The cash flows of the company are taken to arrive at the terminal value.
26) Equity is cheaper than debt which increases the profitability.
19) a is the correct answer. It is a short term unsecured promissory notes issued by major corporations.
20) The underwriter of an IPO advises the issuing company on how many shares to offer, price and performs due diligence and prepares documents for submission to SEC.
21) D is the correct answer. The market risk premium is the rate an individual investor requires that is beyond the risk free rate.
22) Certificate of deposits:
Formula = d(1+r/c)^(y*c) – d
D = 1200+1500 = 2700, r = 6%, y = 5 years
= 2700(1+6%/12) ^(5*12) – 2700
= 2700(1+0.005) ^ (60) – 2700
=2713.50 – 2700
=713.50
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