# Cheng Inc. Is Considering A Capital Budgeting Case Study

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ST8 1. Chapter 8 - Risk and Rates of Return Question MC #117 Cheng Inc. is considering a capital budgeting project that has an expected return of 40% and a standard deviation of 30%. What is the project's coefficient of variation? | | | Student Response | Value | Correct Answer | Feedback | 1. | 0.82 | | | | 2. | 0.65 | | | | 3. | 0.92 | | | | 4. | 0.71 | | | | 5. | 0.75 | | | | | General Feedback: | Expected return | 40.0% | Standard deviation | 30.0% | Coefficient of variation = std dev / expected return = | 0.75 | | | | Score: | 0/10 | | 2. Chapter 8 - Risk and Rates of Return Question MC #119 Bill Dukes has \$100,000 invested in a 2-stock portfolio.…show more content…
| 6.64% | | | | 2. | 8.85% | | | | 3. | 6.73% | | | | 4. | 9.30% | | | | 5. | 9.56% | | | | | General Feedback: | Real risk-free rate, r* | 2.00% | Expected inflation, IP | 3.00% | Market risk premium, RPM | 4.70% | Beta, b | 0.82 | Risk-free rate = r* + IP = | 5.00% | Kollo's required return = rRF + b(RPM) = | 8.85% | | | | Score: | 0/10 | | 5. Chapter 8 - Risk and Rates of Return Question MC #51 Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio? | | | Student Response | Value | Correct Answer | Feedback | 1. | Coefficient of variation; beta. | | | | 2. | Variance; correlation coefficient. | | | | 3. | Standard deviation; correlation coefficient. | | | | 4. | Beta; variance. | | | | 5. | Beta; beta. | | | | | Score: | 0/10 | | 6. Chapter 8 - Risk and Rates of Return Question MC #57 Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct. | | | Student Response | Value | Correct Answer | Feedback…show more content…
Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? | | | Student Response | Value | Correct Answer | Feedback | 1. | Increase the dividend payout ratio for the upcoming year. | | | | 2. | Increase the percentage of debt in the target capital structure. | | | | 3. | Reduce the amount of short-term bank debt in order to increase the current ratio. | | | | 4. | Reduce the percentage of debt in the target capital structure. | | | | 5. | Increase the proposed capital budget. | | | | | Score: | 0/10 | | 2. Chapter 10 - The Cost of Capital Question MC #65 Bosio Inc.'s perpetual preferred stock sells for \$75.00 per share, and it pays an \$8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?