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What is the opportunity cost of capital?

Firm has perpetual cash flow of $5 with discount rate 5%, debt $30 and 14 shares. Share price?

UvA FinBV Tutorial 1a

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1
Firm has perpetual cash flow of $5 with discount rate 5%, debt $30 and 14 shares. Share price?
$5
$70
$7
$3
2
What is the opportunity cost of capital?
The required rate that compensates for risk.
The rate you expect to receive on this investment.
The average historical rate on shares.
The rate you pay for your funds at a bank.
3
What is the Free Cash Flow?
Cash flow available for both debt and equity.
Cash flow after debt and available to equity.
The amount of cash you retain in the firm.
Profit after tax plus depreciation less capital expenses.
4
What happens if a stock deviates from the Security Market Line (SML)?
The price mechanism will drive it back to the SML .
It is probably a start-up firm.
Its return must be higher than the risk-free rate.
It is an attractive stock and its price will rise.