Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Question
Which of the following statements is correct?
(a) The quickest way to determine whether the firm
has too much debt is to calculate the Timesinterest-earned ratio.
(b) The best rule of thumb for determining the firm’s
liquidity is to calculate the current ratio.
(c) From an investor’s point of view, the price-toearnings ratio is a good indicator of whether or
not a firm is generating an acceptable return to
the investor.
(d) The operating margin is determined by subtracting all operating and non-operating expenses
from the gross margin.
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- Consider two firms that are alike in every way except that Firm A has fixed rate debt in its capital structure and Firm B has variable rate debt. Which firm has riskier equity? Why?arrow_forwardPlease help me correctly plsarrow_forward"Address the limitations of traditional methods such as CAPM (Capital Asset Pricing Model) andDiscounted Cash Flow Analysis in valuing a company's stock price in non - stationary marketconditions. Particularly, discuss the consistency of the beta coefficient in determining the cost ofcapital and the selection of the risk - free rate. Also, evaluate how these traditional models can orcannot integrate non-financial factors (e. g., company management, brand value, industry trends).Lastly, discuss the alternative models used in stock valuation and the advantages and disadvantagesof these models compared to traditional methods."arrow_forward
- The PE ratio is a very common method used by investors to get a quick calculation on the market’s perception of a company. Evaluate the formula used to calculate the PE ratio focusing on the limitations of this method of valuation?arrow_forwardWhat factors affect current market interest rate? Why does the slope of the yield curve provide an important clue to the direction of future short-term interest rates?Given the forward rate available to the company, discuss the factors that it should consider at the outset when deciding whether to fix the future interest rate. The word-count for this element should be 500-600 words.arrow_forwardWhich of the following statements is CORRECT? * In most cases, increasing a company's debt ratio raises the marginal cost of both debt and equity funding. However, this action could also reduce the company's WACC. Since debt funding is less costly than equity financing, rising a company's debt ratio would often lower its WACC. Since the use of financial leverage has no impact on a firm's beta coefficient, leverage has no effect on the cost of equity. Since debt funding increases a company's financial risk, raising its debt ratio will often increase its WACC. In most situations, rising a company's leverage ratio reduces the marginal cost of both debt and equity funding. However, this behavior could increase the company's WACC.arrow_forward
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