Fortunately for investors, assigning a beta to individual projects is more of a science than an art. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Assigning a beta to individual projects is more of an art than a science.
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
________ 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
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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
Date: September 19th, 2020
Minimizing the weighted average cost of capital allows management to undertake a larger number of profitable projects, thereby further increasing the value of a firm. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
