1. Projects of varying risk can be evaluated by: a. identical certainty equivale

Question

1. Projects of varying risk can be evaluated by:
a. identical certainty equivalents.
b. high-risk projects having high certainty equivalents.
c. comparable risk-adjusted net present value.
d. usage of cumulative probability beta analysis.

2. The most acceptable view of capital structure, according to the text, is that the weighted average cost of capital:
a. first falls with moderate levels of leverage and then increases as a firm's leverage becomes high.
b. does not change with leverage
c. increases proportionately with increases in leverage
d. increases with moderate amounts of leverage and then falls.

3. Which of the following is the best indicator of managemen't effectiveness at managing the firm's balance sheet?
a. Debt ratio
b. Total asset turnover
c. Times-interest-earned
d. Operating profit margin

4. Draper Company's common stock paid a dividend last year of $3.70. You believe that the long-term growth in the dividends of the firm will be 8% per year. If your required return for Draper is 14%, how much are you willing to pay for the stock?

Explanation / Answer

1. Projects of varying risk can be evaluated by:

c. comparable risk-adjusted net present value.


2. The most acceptable view of capital structure, according to the text, is that the weighted average cost of capital:
a. first falls with moderate levels of leverage and then increases as a firm's leverage becomes high.


3. Which of the following is the best indicator of managemen't effectiveness at managing the firm's balance sheet?

b. Total asset turnover

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