Using beta as a risk measurement device has not caught on in the real world because finding the value is nearly impossible for most investors. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Most online investment information sources provide estimates of beta for publicly traded securities; e.g. finance.yahoo.com.
One of the functions of a finance manager is ________. A) to forecast for the coming period B) to forecast for the present period C) to forecast for the past period D) to forecast for the present and future periods ANSWER Answer: A
You have learned how to use NPV and IRR to evaluate projects as part of a capital budgeting decision-making process. How is WACC used in each of these capital-budgeting processes? What will be an ideal response? ANSWER Answer: When calculating the NPV of a project, the WACC is the appropriate required rate of […]
If the securities markets are efficient, the market’s reaction to new information about a firm’s value (such as an earnings announcement) should be: a. gradual, as investors rationally deliberate the effect of the information on the stock’s value. b. immediate and unbiased. c. slow or fast, depending on the amount of ‘surprise’ contained in the […]
Michigan Industries has three projects under consideration. Project L is a lower-than-average-risk project, project A is an average-risk project, and project H is a higher-than-average-risk project. You have gathered the following information to determine if one or more of these projects has an acceptable rate of return for the firm. • Sources of financing 50% […]
The cash conversion cycle is the sum of average age of the inventory and average collection period minus average payment period. Indicate whether the statement is true or false ANSWER TRUE
The appropriate capital budgeting decision rule is ________. A) to accept projects with an NPV greater than $0 B) to reject projects with an IRR greater than the required rate of return C) to reject projects with an NPV greater than $0 D) to reject projects with an IRR greater than the required payback period […]
Clearinghouse Publications is adding a new magazine project to the company portfolio and has the following information: the expected market return is 12%, the risk-free rate is 4%, and the expected return on the new project is 20%. What is the beta of the project? A) 1.00 B) 1.50 C) 1.75 D) 2.00 […]
Management has just discovered an excellent investment for which it needs additional funding. Relative to the discussion on asymmetric information, the firm should ________. A) finance with new common stock if management believes the firm is undervalued B) finance with debt if management believes the firm is undervalued C) finance with debt if management believes […]
Nonmanufacturing firms are more likely to have positive cash conversion cycles; they generally carry smaller, faster-moving inventories and often sell their products for cash. Indicate whether the statement is true or false ANSWER FALSE
