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FINC 600 Week 4 Practice Quiz

FINC 600 Week 4 Practice Quiz

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Author: Trudy Webb
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Part 1 of 1 -

10.0/ 10.0 Points

 
Question 1 of 10

1.0/ 1.0 Points

Using the company cost of capital to evaluate a project is:I) Always correctII) Always incorrect III) Correct for projects that are about as risky as the average of the firm's other assets
 
 
 
A.I only

 
 
B.II only

 
 
C.III only

 
 
D.I and III only

 
 
 
 

Question 2 of 10

1.0/ 1.0 Points

Which of the following type of projects has average risk?
 
 
 
A.Speculation ventures

 
 
B.New products

 
 
C.Expansion of existing business

 
 
D.Cost improvement

 
 
 
 

Question 3 of 10

1.0/ 1.0 Points

The market value of Cable Company's equity is $60 million, and the market value of its risk-free debt is $40 million. If the required rate of return on the equity is 15% and that on the debt is 5%, calculate the company's cost of capital. (Assume no taxes.)
 
 
 
A.15%

 
 
B.10%

 
 
C.11%

 
 
D.None of the above

 
 
 
 
 
Feedback: Company cost of capital = (40/100)(5) + (60/100)(15) = 11%

Question 4 of 10

1.0/ 1.0 Points

The hurdle rate for capital budgeting decisions is:
 
 
 
A.The cost of capital

 
 
B.The cost of debt

 
 
C.The cost of equity

 
 
D.All of the above

 
 


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