
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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- The NZ Equity market is illiquid, both in the primary and secondary markets. What does market illiquidity mean? What are the reasons for the low liquidity? How might equity market liquidity be improved?arrow_forwardWhich statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the abovearrow_forwardWhich statement below is incorrect? Select one: A. Compared to interview, survey is more suitable to ask standardised questions. B. If a firm has more intangible assets, according to the trade-off theory, it is more likely to have a higher leverage. C. If a firm is more profitable, according to the pecking order theory, it should use less debt for financing. D. The CAPM model implies that a stock with a higher beta has a higher return on average.arrow_forward
- Please 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_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_forward
- Which 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_forwardSuppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio. a. True b. Falsearrow_forwardWhich of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.arrow_forward
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