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## TJ Co stock has a beta of 1.62, the current risk-free rate is 5.92 percent, and the expected return on the market is 14.17 percent. What is TJ Co's co...

2012-08-06
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Question:

TJ Co stock has a beta of 1.62, the current risk-free rate is 5.92 percent, and the expected return on the market is 14.17 percent. What is TJ Co's cost of equity?

1. 21.71%
2. 28.88%
3. 19.29%
4. 32.55%

7) B24&Co stock has a beta of 1.61, the current risk-free rate is 3.11 percent, and the expected return on the market is 10.61 percent. What is B24&Co's cost of equity?

1. 15.33%
2. 15.19%
3. 20.19%
4. 25.20%

8) You have a portfolio with a beta of .92. What will be the new portfolio beta if you keep 70 percent of your money in the old portfolio and 30 percent in a stock with a beta of 1.52?

1. 1.10
2. 1.00
3. 2.44
4. 1.22

9) When choosing between two mutually exclusive projects using the pay back period method for evaluating capital projects, one would choose

1. Either project if they both are more than managers' maximum payback period.
2. Neither project if they both are less than managers' maximum payback period.
3. The project that pays back the soonest.
4. The project that pays back the soonest if it is equal to or less managers' maximum payback period.

10) Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time:                                         0             1               2             3

Project A Cash Flow      -24,000 14,000   34,000   5,000

Project B Cash Flow      -34,000 14,000   24,000   54,000

Use the discounted payback decision rule to evaluate these projects; which one(s) should it be accepted or rejected?

1. accept A, reject B
2. reject A, accept B
3. accept neither A nor B
4. accept both A and B

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