There are 24 T/F and Multiple Choice Questions of Corporate Finance.
Which could not find online, so I need professional to finish them
1. Sensitivity and scenario analysis aid the capital budgeting decision process by changing the underlying assumptions on which the decision is based.
2. In the accounting break-even the EAC is used to allocate the initial investment at its opportunity cost over the life of the project.
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Sensitivity and scenario analysis aid the capital budgeting decision process by changing the underlying assumptions on which the decision is based.
In the accounting break-even the EAC is used to allocate the initial investment at its opportunity cost over the life of the project.
The slope of the capital market line is the equilibrium price of risk in terms of expected return, (E(RM) – RF) / σM .
The two-fund separation in the CAPM equilibrium means that every investor holds a combination of the well-diversified market portfolio and the risk-free asset.
The SML is a graphical presentation of the relationship between a security’s expected return and its beta.
If other things remain the same, the higher the standard deviation, the lower the beta of a security.
The beta of a security is estimated as the slope of the regression equation, where the dependent variable (vertical axis) is the (excess) return on the security and the independent variable (horizontal axis) is the (excess) return on the market portfolio.
If a security is above the SML, a mean-variance investor would sell the security because it is overvalued.
The cost of debt of a firm is equal to one plus the marginal corporate tax rate (1 + TC) multiplied by the yield to maturity of its outstanding debt.
The adjusted beta is always lower than the unadjusted beta.
One method of estimating the growth rate of a company is to use the retention growth model, where the growth rate (=g) is estimated as the ROE multiplied by the plowback ratio.
The financial leverage is the extent to which fixed-income securities are used in a firm’s capital structure.
As the debt ratio of a firm increases, its equity beta increases because of the added financial risk.
MM’s proposition I under no taxes implies that the cost of equity of a firm remains the same as the firm uses more debt because of the no-tax assumption.
MM’s proposition I under no taxes implies that an issue of debt increases both the expected earnings per share (EPS) and the risk of the EPS. As a result, the stock price remains the same.
_____ evaluates the NPV of a project with respect to changes in one variable while holding others constant.
Mean Variance model
The present value (PV) break-even point is better than the accounting break-even point because
PV break-even point is the same as the sensitivity analysis.
PV break-even point covers the economic opportunity costs of the investment.
PV break-even point covers the fixed costs of production, which the accounting break-point does not.
PV break-even point covers the variable costs of production, which the accounting break-even point does not.
An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Market Line has to
lend some of her money at the risk-free rate and invest the rest in the optimal risky portfolio.
borrow some money at the risk-free rate and invest it in the optimal risky portfolio
invest only in the risky securities.
hold a portfolio which is not diversified.
If other things remain the same, diversification is more effective when
securities returns are positively correlated.
securities returns are uncorrelated.
securities returns are negatively correlated.
securities returns are high.
A measure of how much the returns of two risky assets move together is
The optimal risky portfolio can be identified by finding ______ .
the minimum variance point on the efficient frontier
the maximum return point on the efficient frontier
the tangency point of the capital market line and the efficient frontier
none of the above answers is correct.
Which one of the following is not a determinant of beta of the equity of a company?
cyclicality of revenues
All of the above are determinants of beta.
When the SML is written in the following form, the second tem (underlined) in the equation represents ______________:
RS,L = RF + βS,U (RM – RF) + βS,U (B/S) (RM – RF)
total risk premium
business risk premium
financial risk premium
non-systematic risk premium
When we consider the corporate taxes, the value of a levered firm can be shown as the next equation: VL = VU + tc B.
The last tem (=tc B) in the equation above represents _______.
present value of taxes
present value of tax shields
present value of financial risk premium
present value of bankruptcy costs
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