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Norris Enterprises, an all-equity firm, has a beta of 2.0. The chief financial officer is evaluating a project with an expected return of 14%, before any risk adjustment. The risk-free rate is 5%, and the market risk premium is 4%. The project being evaluated is riskier than an average project, in terms of both its beta risk and its total risk. Which of the following statements is CORRECT? a. The project should definitely be accepted because its expected return (before any risk adjustments) is greater than its required return. b. The project should definitely be rejected because its expected return (before risk adjustment) is less than its required return. c. Riskier-than-average projects should have their expected returns increased to reflect their higher risk. Clearly, this would make the project acceptable regardless of the amount of the adjustment. d. The accept/reject decision depends on the firm's risk-adjustment policy. If Norris' policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project. e. Capital budgeting projects should be evaluated solely on the basis of their total risk. Thus, insufficient information has been provided to make the accept/reject decision.
Calculate The consumer gain from removing the duty. - Calculate The producer loss from removing the duty. - Calculate The government tariff revenue loss.
Cyberco Corporation has 5 million shares of stock outstanding. Cyberco's after-tax profits are $15 million and the corporation's stock is selling at a price-earnings multiple of 10, for a stock price of $30 per share. Use the price earnings multiple ..
Suppose that a parcel of 10 percent October 2013 Treasury bonds was purchased at 6 per cent on 15 October 2005. The parcel was subsequently sold on 15 April 2008 at a yield of 6.3 per cent. If the coupons were reinvested at 4.5 per cent per annum, de..
Boehm Incorporated is expected to pay a $2.20 per share dividend at the end of this year (i.e., D1 = $2.20). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 17%. What is the value per..
Thornley Machines is considering a 3-year project with an initial cost of $690,000. The project will not directly produce any sales but will reduce operating costs by $405,000 a year. The project will require $17,000 in extra inventory for spare part..
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,550 face value and a 6% coupon, semiannual payment ($46.5 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, wha..
Hunter's Lodge purchased $578,000 of equipment four years ago. The equipment is seven-year MACRS property. The firm is selling this equipment today for $199,500. What is the Book Value of this equipment at the time of sale?
Which of the following are factors that help explain why the percentage of U.S. industrial firms paying dividends has increased since the early 2000s?
You need $100,000 to open the brewery. Assume the bank has offered to give you a loan. The annual interest rate is 6% and the loan will mature (come due) in one year. If you expect the project to generate a return of 4% in the first year, should you ..
Acme Conglomerate Corporation operated three divisions. One division involves significant research and development, and thus has a high-risk cost of capital of 15%. The second division operates in business segments related to Acme's core business, an..
Hickock Mining is evaluating when to open a gold mine. The mine has 39,000 ounces of gold left that can be mined, and mining operations will produce 6,500 ounces per year. The required return on the gold mine is 10 percent, and it will cost $34.5 mil..
A stock has had returns of −19.6 percent, 29.6 percent, 31.2 percent, −10.7 percent, 35.4 percent, and 27.6 percent over the last six years. What are the arithmetic and geometric returns for the stock?
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