Coursera course Corporate Finance Essentials Quiz 3 solution. The CAPM and the Cost of Capital

 The CAPM and the Cost of Capital

 

Quiz 3

8 questions

1
point

1. 

What is Bull’s net income?

$112.7 million

$162.5 million

$95.9 million

$87.3 million

$137.4 million

1
point

2. 

What is Bear’s net income?

$146.9 million

$165.8 million

$200.5 million

$127.6 million

$181.2 million

1
point

3. 

What is the tax shield that Bear obtains because of its debt?

$6.1 million

$12.1 million

$8.4 million

$9.8 million

$4.3 million

1
point

4. 

Assuming that the required return on Bear’s debt is currently equal to its interest rate of 6%, what is this company’s after-tax cost of debt?

9.5%

7.2%

5.1%

3.9%

11.0%

1
point

5. 

Which one of the statements below is true?

Risk-free rates are always estimated as the yield on 30-year Treasury Bonds.

Risk-free rates are always estimated as the yield on 10-year Treasury Notes.

The inputs of the CAPM can be estimated in a wide variety of ways.

Betas are always estimated using ten years of data.

Betas are always estimated using five years of data.

1
point

6. 

Of the five options below, select the one that incorrectly completes the following sentence:“The weighted-average cost of capital …

is always based on weights of 50% debt and 50% equity.”

is a hurdle rate.”

is directly related to the riskiness of a company.”

is the minimum required return on a company’s investment projects.”

can be equal to the cost of equity.”

1
point

7. 

Which one of the statements below is false?

The cost of debt is typically higher than the cost of equity.

The cost of equity is not observable and must be estimated.

The cost of equity is subjective.

The cost of debt is observable.

The cost of debt is objective.

1
point

8. 

Which one of the statements below is true?

The CAPM is the only model that can be used to estimate a company’s cost of equity.

The yield to maturity of a coupon bond changes whenever the bond’s price changes.

The market risk premium is usually a negative number.

The risk-free rate is always approximated with the yield to maturity of 30-year bonds.

The risk-free rate captures the return required for bearing risk.