1.Which is an example of discounting? A.Prejudice B.Depreciation C.Interest paym

Question

1.Which is an example of discounting?

A.Prejudice

B.Depreciation

C.Interest payments on bonds

D.Future free cash flows

2.The interest rate on the U.S. 10-year Treasury measures:

A.r(infl)

B.r(pref)

C.r(infl) + r(pref)

D.r(infl) + r(pref) + r(risk)

3.The WACC measures a firm’s:

A.r(infl)

B.r(pref)

C.r(infl) + r(pref)

D.r(infl) + r(pref) + r(risk)

4.As of today, MU’s WACC = 11.6% and SBUX’s WACC = 5.9%. Both MU (Micron) and SBUX (Starbucks) are publicly traded companies. This means:

A.MU's cost of capital is higher than SBUX's

B.The market views MU as riskier than SBUX

C.Both (a) and (b)

D.None of the above

Explanation / Answer

Answer 1) Meaning of Discounting is to find the present value of future cash inflow

option D .

Answer 2)

Option C r(infl) + r(pref)

Answer 3)

Option D. r(infl) + r(pref) + r(risk)

Answer4)

option A.MU's cost of capital is higher than SBUX's

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