Which of the following stocks are overpriced If the risk-free rate is 4% annually and...
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Which of the following stocks are overpriced If the risk-free rate is 4% annually and the market risk premium is 6% per year? Stock Beta Expected Return WSB 1.25 12.60% JaneCo 0.BO 8.80% BobCo 1.06 10,20% JaneCo and BobCo only JaneCo only WSB and BobCo only WSB only They are all overpriced. WSB and JaneCo only None of the stocks is overpriced. Bobco only Which of the following statements concerning WACC are false? Select "All are true if you think none of the statements about WACC are false. Select one or more correct answers. o When using an existing firm's WACC to evaluate a potential project we assume the project will be financed in a similar manner as the firm. o When using an existing firm's WACC to evaluate a potential project we assume the project has more risk than the firm. If a project has a positive NPV when using WACC, you know it is below the security market line. WACC accounts for the tax deductibility of dividend payments. All are true. When using the IRR rule, you compare the IRR of a project's CFFAs to WACC because it is your required return. o If a project has a negative NPV it means it does not generate sufficient cash flows to cover the capital providers' opportunity costs
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