The idea that investors on average have earned a higher return from common stocks than from Treasury bills supports the view that

An investor holds a stock for one year. She then receives a dividend of $10 and sells the stock for $120. If her return was 16%, at what price did she buy the stock?

Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1= $1.45; P0 = $28.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

A project has a beta of 0.97, the risk-free rate is 4.1%, and the market risk premium is 8.1%. What is the project’s expected rate of return?

The internal rate of return is most reliable when evaluating:

Last month, Lloyd’s Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm’s WACC. The Fed’s action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project’s forecasted NPV? Note that a project’s projected NPV can be negative, in which case it should be rejected.  Old WACC: 10.00% New WACC: 8.00% Year 0     1   2   3   Cash flows -$1,000 $410 $410 $410

The yield curve depicts the current relationship between:

A firm has 54,000 shares of common stock outstanding with a book value of $8 per share and a market value of $13. There are 17,000 shares of preferred stock with a book value of $18 and a market value of $22. There is a $1,000,000 face value bond issue outstanding that is selling at 106% of par. What weight should be placed on the debt when computing the firm’s WACC?

The slope of the security market line equals:

The benefits of portfolio diversification are highest when the individual securities have returns that: