What could happen to “unused” dollars after a firm has chosen capital projects but still has remaining unallocated funds? A) The remaining funds may be invested at the “going rate” of the company. B) The remaining funds, if internally generated, may be paid back to shareholders as a dividend. C) If the remaining funds are […]
Your firm has $4,000,000 available for investment in capital projects. Which combination of projects is the best, given this budget constraint? Project Initial Investment NPV A $1,000,000 $150,000 B $500,000 $200,000 C $1,500,000 $175,000 D $1,750,000 $135,000 A) A, B, C B) A, B, D C) A, C, D D) B, C, D […]
In the _(i)_ of the efficient market hypothesis (EMH), a security’s price reflects all publicly available information. In the __(ii)_ form of the EMH, a security’s price reflects all information that may be contained in the historical prices of a security. In the _(iii)_ of the EMH, a security’s price reflects all information, whether it […]
Acme Business Connections (ABC) has an adjusted WACC of 8.56%. The company has a capital structure consisting of 60% equity and 40% debt, a cost of equity of 11.00%, a before-tax cost of debt of 7.00%, and a tax rate of 30%. ABC is considering expanding by building a new shop in a distant city […]
Penney Fashions is adding a new line of shoes to the company portfolio and has the following information: the expected market return is 13%, the risk-free rate is 3%, and the expected return on the new project is 11%. What is the beta of the project? A) 0.60 B) 0.70 C) 0.80 D) 0.90 […]
For firm XYZ in the previous problem, suppose the firm’s business risk is defined in terms of (ROA), and (ROA)=19%. Assuming that the debt is default-free, compute (ROE). (ROE) a. 19.000% b. 24.325% c. 30.875% d. 49.400% FORMULA: (ROE)= (ROA)[TA/BEQ] ANSWER C
________ refers to a method of matching a single project of a company to another company with a single business focus in an effort to assign an appropriate level of risk to the project. A) Ghosting B) Pure play C) Outside assignment D) Subjective assignment ANSWER Answer: B
The risk of the debt capital is less than that of other long-term contributors of capital because ________. A) they have a lower priority of claim against any earnings or assets available for payment B) they have the stockholders’ personal assurance for all future interest payments C) there is no interest rate risk as the […]
Under which of the following circumstances is the pure play method of estimating a project’s beta particularly useful? A) The firm is looking to expand its current business operations, doing essentially the same work. B) The firm is looking to expand its current business operations into a brand new area unlike any of its internal […]
A positive cash conversion cycle means that a firm must obtain financing to support the cash conversion cycle. Indicate whether the statement is true or false ANSWER TRUE
