Financial Management - Study Mode

[#676] Interest rate is 12% and tax savings (1-0.40) then after-tax component cost of debt will be
Correct Answer

(A) 7.20%

[#677] Retention ratio is 0.60 and return on equity is 15.5% then growth retention model would be
Correct Answer

(D) 9.30%

Explanation

Solution: Growth retention model = Return on equity × Retention ratio = 15.5% × 0.60 = 9.30%

[#678] Method uses for an estimation of cost of equity is classified as
Correct Answer

(C) discounted cash flow method

Explanation

Solution: Method uses for an estimation of cost of equity is classified as discounted cash flow method. Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its future cash flows.

[#679] An attempt to make correction by adjusting historical beta to make it closer to an average beta is classified as
Correct Answer

(B) adjusted beta

Explanation

Solution: An attempt to make correction by adjusting historical beta to make it closer to an average beta is classified as adjusted beta. The Adjusted Beta is an estimate of a security's future Beta.

[#680] Method in which company finds other companies considered in same line of business to evaluate divisions is classified as
Correct Answer

(A) pure play method

Explanation

Solution: Method in which company finds other companies considered in same line of business to evaluate divisions is classified as pure play method. Pure play method is an approach used to estimate beta coefficient of a company whose stock is not publicly traded.