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1、Corporate Finance, 3e (Berk/DeMarzo)Chapter 12 Estimating the Cost of Capital12.1 The Equity Cost of CapitalUse the following information to answer the question(s) below.BetaVolatilityEenie0.4520%Meenie0.7518%Miney1.0535%Moe1.2025%Assume that the risk-free rate of interest is 3% and you estimate the
2、 markets expected return to be 9%.1) Which firm has the most total risk?A) EenieB) MeenieC) MineyD) MoeAnswer: CExplanation: C) Total risk is measured using volatility and Miney has the highest volatility, hence the most total risk.Diff: 1Section: 12.1 The Equity Cost of CapitalSkill: Analytical2) W
3、hich firm has the least market risk?A) EenieB) MeenieC) MineyD) MoeAnswer: AExplanation: A) Market risk is measured using beta and Eenie has the lowest beta, hence the lowest market risk.Diff: 1Section: 12.1 The Equity Cost of CapitalSkill: Analytical3) Which firm has the highest cost of equity capi
4、tal?A) EenieB) MeenieC) MineyD) MoeAnswer: DExplanation: D) Cost of capital is measured using the CAPM and is a linear function of beta. Therefore the firm with the highest beta (Moe) has the highest cost of equity capital.Diff: 1Section: 12.1 The Equity Cost of CapitalSkill: Analytical4) The equity
5、 cost of capital for Miney is closest to:A) 6.30%B) 7.50%C) 9.30%D) 9.75%Answer: CExplanation: C) rMiney = 3% + 1.05(9% - 3%) = 9.3%Diff: 1Section: 12.1 The Equity Cost of CapitalSkill: Analytical5) The equity cost of capital for Meenie is closest to:A) 4.50%B) 7.50%C) 9.30%D) 9.75%Answer: BExplanat
6、ion: B) rMeenie = 3% + 0.75(9% - 3%) = 7.5%Diff: 1Section: 12.1 The Equity Cost of CapitalSkill: Analytical6) The risk premium for Meenie is closest to:A) 4.50%B) 7.50%C) 9.30%D) 9.75%Answer: AExplanation: A) risk premiumMeenie = 0.75(9% - 3%) = 4.5%Diff: 2Section: 12.1 The Equity Cost of CapitalSki
7、ll: Analytical12.2 The Market PortfolioUse the following information to answer the question(s) below.Suppose all possible investment opportunities in the world are limited to the four stocks list in the table below:StockPrice perShareNumber of SharesOutstanding (Millions)Taggart Transcontinental$15.
8、6025Rearden Metal$13.0045Wyatt Oil$29.2510Nielson Motors$26.25261) The weight on Taggart Transcontinental stock in the market portfolio is closest to:A) 15%B) 20%C) 25%D) 30%Answer: BExplanation: B) Calculations B C D/1950StockPrice perShareNumber of SharesOutstanding (Millions)MarketCapWeightTaggar
9、t Transcontinental$15.6025$390.000.2Rearden Metal$13.0045$585.000.3Wyatt Oil$29.2510$292.500.15Nielson Motors$26.2526$682.500.35Total$1950.00Diff: 1Section: 12.2 The Market PortfolioSkill: Analytical2) The weight on Wyatt Oil stock in the market portfolio is closest to:A) 15%B) 20%C) 25%D) 30%Answer
10、: AExplanation: A) Calculations B C D/1950StockPrice perShareNumber of SharesOutstanding (Millions)MarketCapWeightTaggart Transcontinental$15.6025$390.000.2Rearden Metal$13.0045$585.000.3Wyatt Oil$29.2510$292.500.15Nielson Motors$26.2526$682.500.35Total$1950.00Diff: 1Section: 12.2 The Market Portfol
11、ioSkill: Analytical3) Suppose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have invested in Nielson Motors is closest to:A) $6,000B) $7,715C) $9,000D) $10,500Answer: DExplanation: D) Calculations B C D/1950StockPrice perShareNumber of Sha
12、resOutstanding (Millions)MarketCapWeightTaggart Transcontinental$15.6025$390.000.2Rearden Metal$13.0045$585.000.3Wyatt Oil$29.2510$292.500.15Nielson Motors$26.2526$682.500.35Total$1950.00AmountNielson = AmountRearden = $9,000 = $10,500Diff: 2Section: 12.2 The Market PortfolioSkill: Analytical4) Supp
13、ose that you are holding a market portfolio and you have invested $9,000 in Rearden Metal. The amount that you have invested in Taggart Transcontinental is closest to:A) $4,500B) $6,000C) $7,715D) $9,000Answer: BExplanation: B) Calculations B C D/1950StockPrice perShareNumber of SharesOutstanding (M
14、illions)MarketCapWeightTaggart Transcontinental$15.6025$390.000.2Rearden Metal$13.0045$585.000.3Wyatt Oil$29.2510$292.500.15Nielson Motors$26.2526$682.500.35Total$1950.00AmountNielson = AmountRearden = $9,000 = $6,000Diff: 2Section: 12.2 The Market PortfolioSkill: Analytical5) Suppose that you have invested $30,000 invested in the market portfolio. Then the amount that you
