In order for a firm to realize positive EVA, the: A) ROCE must be less than the cost of capital. B) cost of capital must be greater than the ROCE. C) ROCE must be greater than the cost of capital. D) the ROCE and cost of capital must be equal. ANSWER C
Date: September 19th, 2020
Explain the rationale for why anyone would choose to buy a zero coupon bond that pays no interest prior to maturity and pays only the face value of the bond at maturity. What will be an ideal response? ANSWER Zero coupon bonds pay only the face value at maturity and nothing else. Thus […]
Date: September 19th, 2020
Preferred stockholders are the residual claimants of the firm. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Which of the following statements regarding Market Value Added (MVA) is TRUE? A) MVA = market value of the firm – invested capital B) A positive MVA indicates that the market believes the firm has created value for its stakeholders. C) MVA represents the present value of anticipated EVAs, discounted at the appropriate cost of […]
Date: September 19th, 2020
Common stockholders are subordinate to all other creditors in their payments. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following decisions by management could increase a firm’s Market Value Added (MVA)? A) Improve the rate of return on the existing capital base. B) Invest more capital in attractive projects with returns that exceed the cost of capital. C) Stop investing in projects that have returns less than the appropriate cost of […]
Date: September 19th, 2020
EVA assumes a business is worth the present value of anticipated net cash flows discounted by the cost of capital, less the amount invested in order to generate future cash flows. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
If we are simply interested in determining whether the market as a whole, such as the S&P 500, is over- or undervalued, then the perpetual constant growth model is reasonable. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Low income earners A) may contribute additional amounts to an IRA under a catch-up provision. B) are not bound by contribution limits. C) may receive a tax credit based on contributions to an IRA D) can access there funds without incurring a tax penalty. ANSWER C
Date: September 19th, 2020
The following returns were earned last year: Fund A, 10%, Fund B, 20%, the overall market, 11%. Fund A’s beta was 0.8 while Fund B’s was 2.0. Therefore, both funds would have been good investments. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
