15. Many business managers prefer to use the payback period as a capital budgeting decision criterion because it is easy to calculate and it tells you how many years it will take to recover your initial investment. True or False
16. Net present value (NPV) is theoretically preferred to the internal rate of return (IRR) and payback (PB) methods as a capital budgeting decision-making method. True or False
19. Which of the following measures the total risk (the combined systematic and company specific risks)?
A. beta.
B. standard deviation.
C. both beta and standard deviation measure total risk.
D. neither beta nor standard deviation measures total risk.
20. A decrease in the _______________ will increase the price you are willing to pay for a stock.
A. growth rate of dividends and earnings
B. discount rate (required rate of return or k).
C. current dividend
D. a decrease in any of the above will increase the value of a stock today
21. Using the CAPM, what is the required rate of return on stock A given the following information? The risk free rate is 5%, the market rate of return is 10%. The company you are interested in has a beta of 1.26. The required rate of return is closest to:
A. 5%
B. 6.3%
C. 11.3%
D. 15%
