Qd 57. Which of the following statements are true?i. As a shareholder of the firm who is contemplating a new project, weshould be more concerned with the financial break-even point than theaccounting break-even point.ii. Traditional NPV analysis tends to overestimate the true value of aproject since, it ignores the value of the real options embedded in theproject.iii. For a project with conventional cashflows, we will always reach thefinancial break-even point before the accounting break-even since,financial profitability correctly accounts for the timing and the riskinessof the cashflows.iv. The greater the cash outflows, the more likely the project has anegative net present value, all else the sameii and iiiNone of the statements are true.iv onlyil and ivi and iv

Break-even point refers to that point at which a company’s revenue is equal to its costs. A company…

Answered: Which of the following statements are…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 8MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

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Firms will take investments only when expected risks are remunerated by expected profit. * a. Incremental cash flows b. Efficient capital markets c. Risk-return trade-off d. All risks are not equal
3. Suppose your firm is going to finance a new investment project with only retained earnings. The manager claims that since the earnings are already being retained and that since no outside financing is required, the project should be evaluated at the risk-free rate of return. Is this appropriate? Are retained earnings risk-free? Why or why not? (3 marks)
Arbitrage is the idea that one can (select the best answer): Group of answer choices Buy and Sell different assets or packages of assets at different prices such you can earn a riskless profit without investing any capital. Earn rates of return greater than the average for the market by successfully “picking” stocks. Earn abnormal returns above what CAPM would predict for a particular security.
if a firm has had sales which have been extremely variable, the firm should Question 1 options: project COGS instead. begin by projecting cash. forgo projections. forecast dividends first. create multiple forecasts.
3. Suppose your firm is going to finance a new investment project with only retained earnings. The manager claims that since the earnings are already being retained and that since no outside financing is required, the project should be evaluated at the risk-free rate of return. Is this appropriate? Are retained earnings risk-free? Why or why not?
Which of the following statements is most FALSE? A. If a project with normal cash flows has a positive NPV, it will definitely have an MIRR greater than the cost of capital. B. If a project with normal cash flows has an IRR that is greater than the cost of capital, then taking on that project would decrease the value of the firm. C. If a project has normal cash flows, then the MIRR has to be between k and IRR if the project has positive interim cash flows (cash flows between t=0 and the end of the project). D. If a project with normal cash flows does not have any interim cash flows, the project's IRR will equal the project's MIRR. E. Multiple IRRS can exist for a project if the project has nonnormal cash flows. OA OB OC
According to the M&M propositions, in a perfect market which of the following statements is true? a.The value of the firm will be equal to the net present value of its underlying projects b.The value of the firm is higher when financed with debt due to its lower cost c.The net present value of a firmʹs projects should exceed the present value of the firmʹs issued claims d.The net present value of a firmʹs projects will be higher if they are financed with debt since debt carries a lower cost
If you could only have one piece of information to help you understand the discount rate for evaluating a project at hand, which of the following would you prefer? The project has different systematic risk than the firm overall. Group of answer choices How the project's expected cash flows are effected by the overall economy The firm's credit rating The firm's cost of equity The firm's WACC
6. Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. Group of answer choices True False
Which of the following statements is FALSE? a) The Capital Asset Pricing Model is the most important method for estimating the cost of capital that is used in practice. b) Because the risk that determines expected returns is unsystematic risk, which is measured by beta, the cost of capital for an investment is the expected return available on securities with the same beta. c) A common assumption is that a project has the same risk as the firm. d) To determine a project's cost of capital we need to estimate its beta.
If you use market values to calculate the WACC, and your stock price is volatile or bond prices become unstable, will this affect your capital structure and, in turn, the investment decision the firm makes? In other words, can the WACC be volatile?
Questions about Costs of Capital. Which of the following is true: 1. Cost of Equity is lower than cost of debt because equityholders face higher risk than debtholders II. The expected cash flows from the projects that have higher uncertainty normally should be discounted at a lower rate. III. Rational investors require to be compensated for bearing higher risks by requiring higher expected return O II only OI only OI and III only II and III only O III only

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