WACC - 3 4 3 Determinants of Required (Rate of) Return • What are investors’ concerned with? (and thus firms should also be concerned with.) (1.) Real or inflation-adjusted rate of interest to compensate for the TIME VALUE OF MONEY. (2.) An inflation premium - equal to expected inflation. (3.) A Premium for systematic risk. (4.) Amount of systematic risk (β) WACC - 4 5 C. • • Rates of Return are Set in the Market ON THE BASIS OF AN INTERACTION OF: (1) VOLUME AND RISK-EXPECTED
Words: 1622 - Pages: 7
Question 1 | | 0.25 / 0.25 points | APV = NPV (without expansion option) + Value of the expansion option. | | 1) True | | | 2) False | Question 2 | | 0.25 / 0.25 points | The owner of a professional sports franchise, looking to get a new stadium, would benefit from a put option if the deal falls through. | | 1) True | | | 2) False | Question 3 | | 0.25 / 0.25 points | If you write a put option, you acquire the right to buy stock at a fixed strike price. | | 1) True |
Words: 5580 - Pages: 23
day-to-day operations. • limited; no • no; total • unlimited; no • limited; total • unlimited; total 2. Which one of these is a correct definition? • Long-term debt is defined as a residual claim on a firm’s assets. • Net working capital equals current assets plus current liabilities. • Current liabilities are debts that must be repaid in 18 months or less. • Tangible assets are fixed assets such as patents. • Current assets are assets with short lives, such as inventory. 3. The owners
Words: 3096 - Pages: 13
Chapter 11 Efficient Capital Markets: Evidence 1. Roll’s critique (1977) is based on the assumption that capital markets are in equilibrium. What happens when the market is not in equilibrium? Suppose new information is revealed such that the market must adjust toward a new equilibrium which incorporates the news. Or suppose that a new security is introduced into the marketplace, as was the case of new issues studied in the Ibbotson (1975) paper. Given such a situation, the abnormal performance
Words: 11793 - Pages: 48
1. Within a limited partnership context, what are the conditions on a limited partner? A) There is a limit to the amount of capital that a limited partner can contribute, as mandated by law. B) There is a limit to the number of limited partners that the firm may take on as investors. C) The limited partner must remain a low level employee and cannot ever serve in a managerial role in the firm. D) A limited partner may not take any active role in the operation of the business. Points Earned:
Words: 2278 - Pages: 10
Week 5 Individual Assignment Tips: Part 1: • Determine which project might be implemented and why (e.g. feasibility study, breakeven analysis, etc.). Project Selection Criteria: Build a table with each project as a column heading • Completion Time • Cost ROI Approach: ROI (%) = Net Benefit / Project Cost 1- Approach Elements: Project Cost ROI in $ (Project Total in $) ROI in % on Specified Period= ROI in $ / Project Cost Net Benefit = ROI (%) – Project Cost Project Earnings on Specified
Words: 2757 - Pages: 12
Sample Level I Multiple Choice Questions 1. Sammy Sneadle, CFA, is the founder and portfolio manager of the Everglades Fund. In its first year the fund generated a return of 30 percent. Building on the fund’s performance, Sneadle created new marketing materials that showed the fund’s gross 1year return as well as the 3 and 5-year returns which he calculated by using back-tested performance information. As the marketing material is used only for presentations to institutional clients, Sneadle does
Words: 4875 - Pages: 20
Lesson 1: Assignment Problems 1.1 | Households make four kinds of economic decisions (textbook, pp. 4–5). Suppose you have two households with the same income. Household A has one income earner and Household B has two income earners. How would the four types of economic decisions differ between these two otherwise identical households? (8 marks) | 1.2 | The first economic decision that households need to determine is consumption and savings. Household A with only one income earner would have
Words: 3174 - Pages: 13
46 problems (Chapters 4, 5, 10, 11) Chapter 4 PROBLEMS (p. 129) 1. An ATM service fee of $2 is used by a person 100 times in a year. What would be the future value in 10 years (use a 4 percent rate) of the annual amount paid in ATM fees? $2,401.12 = $200 x 12.006 2. What might be a savings goal for a person who buys a five-year CD paying 4.67 percent instead of an 18-month savings certificate paying 3.29 percent? A person saving for a longer-term goal such as children’s education
Words: 4538 - Pages: 19
liability bears interest, how is interest expense measured? The simple answer is that interest expense is equal to interest paid. However, life can get a lot more complicated: Does a liability exist if there is no legal liability, but the company has announced a particular commitment or plan of action? How is a liability measured if the obligation is for services, not a set amount of money? How can a liability be measured if the amount of cash to be paid is uncertain? How should a liability
Words: 34356 - Pages: 138
