What does the portfolio beta measure in a well-diversified portfolio? It measures the liquidity of the assets in a portfolio. It measures the historical performance of a portfolio. It measures the risk of a well-diversified portfolio by measuring the beta of the overall portfolio. It measures the expected return of a portfolio.

It measures the risk of a well-diversified portfolio by measuring the beta of the overall portfolio.

What does the Capital Asset Pricing Model (CAPM) tell us about investors' trade-offs? It models the 'well diversified' investors' trade-off between risk and return. It predicts future stock prices. It calculates the intrinsic value of a company. It determines the optimal capital structure.

It models the 'well diversified' investors' trade-off between risk and return.

What are the assumptions of the Capital Asset Pricing Model (CAPM)? All investors are risk averse, have the same time period to evaluate information, and have unlimited capital to borrow at the risk-free rate. Investors are risk seeking and have no time constraints. Investors have limited capital and can only borrow at high interest rates. Investors are risk neutral and have different time periods to evaluate information.

All investors are risk averse, have the same time period to evaluate information, and have unlimited capital to borrow at the risk-free rate.

What is the difference between project cost of capital and company cost of capital? Company cost of capital is used only for new projects. Project cost of capital is always higher than company cost of capital. Project cost of capital looks at the riskiness of the project, whereas company cost of capital looks at the riskiness of the company. Project cost of capital is irrelevant for financial analysis.

Project cost of capital looks at the riskiness of the project, whereas company cost of capital looks at the riskiness of the company.

What is the definition of cost of capital? The interest rate on a company's loans. The return the firm's investors could expect to earn if they invested in securities with comparable degrees of risk. The cost of issuing new equity. The total amount of debt a company has.

The return the firm's investors could expect to earn if they invested in securities with comparable degrees of risk.

What is capital structure and how is it used in a company's operations? The total amount of cash reserves a company holds. The company's dividend policy. The number of shares a company has issued. The mix of long-term debt and equity used to finance a company's operations.

The mix of long-term debt and equity used to finance a company's operations.

How do the various cost of capital terms relate to risk? Lower risk investments have higher cost of capital. Cost of capital is only affected by market conditions. Higher risk investments have higher cost of capital. Cost of capital is unrelated to risk.

Higher risk investments have higher cost of capital.

What are the different terms related to cost of capital (CoC)? Opportunity cost of capital, company cost of capital, project cost of capital. Interest rate, dividend yield, market capitalization. Asset turnover, equity multiplier, debt ratio. Net income, gross profit, operating margin.

Opportunity cost of capital, company cost of capital, project cost of capital.

What is the definition of Weighted Average Cost of Capital (WACC)? Represents a firm's average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. The total amount of debt a company has. The interest rate on a company's loans. The cost of issuing new equity.

Represents a firm's average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt.

What does WACC indicate about a company's risk and capital structure? WACC reflects the overall risk of the company's investments and is influenced by the company's capital structure. WACC is only affected by the company's stock price. WACC is determined solely by interest rates. WACC is unrelated to the company's risk.

WACC reflects the overall risk of the company's investments and is influenced by the company's capital structure.

Corporate Finance Flashcards: Capital Asset Pricing & Cost of Capital

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Cards in this deck(35)

What does the portfolio beta measure in a well-diversified portfolio?

What does the Capital Asset Pricing Model (CAPM) tell us about investors' trade-offs?

What are the assumptions of the Capital Asset Pricing Model (CAPM)?

What is the difference between project cost of capital and company cost of capital?

What is the definition of cost of capital?

What is capital structure and how is it used in a company's operations?

How do the various cost of capital terms relate to risk?

What are the different terms related to cost of capital (CoC)?

What is the definition of Weighted Average Cost of Capital (WACC)?

What does WACC indicate about a company's risk and capital structure?

What are the steps in calculating the Weighted Average Cost of Capital (WACC)?

What do we typically use to measure the cost of debt?

Why is the after-tax cost of debt so important for a business?

What is the relationship between CAPM and DDM in determining the cost of equity?

What are some caveats when using the Weighted Average Cost of Capital (WACC)?

How does WACC relate to corporate valuation?

What is corporate finance and how do companies raise and allocate capital?

What is the financial deficit in a company's funding needs?

What are some trends in corporate finance regarding funding sources?

What is the difference between issued, outstanding, and treasury stock?

What is par value in the context of common stock?

What is a sinking fund and how is it used by companies?

What are asset-backed and convertible bonds, and how do they differ?

What is venture capital and how is it used by young firms?

What are success ratios and APR in the context of venture capital?

What is the difference between angel investors, corporate investors, and private equity?

What is an IPO, and what are underwriting and spread in this context?

What is the difference between firm-commitment and best-efforts underwriting in an IPO?

What are the steps in the process of an Initial Public Offering (IPO)?

What are some issues with underpricing in an IPO?

What does issuing equity mean for a company looking to raise external capital?

What is additional paid-up capital in the context of stock issuance?

What does issuing debt mean for a company looking to raise external capital?

How does venture capital funding work in terms of stages and management restrictions?

What is the success ratio in a venture capital portfolio?

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Corporate Finance Flashcards: Capital Asset Pricing & Cost of Capital

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