When calculating projects payback period-cash flows

Assignment Help Financial Management

Reference no: EM131179608

What would you recommend to an investor who is considering an investment which, according to its beta, plots above the security market line (SML)?

a) Invest; return is high relative to risk.

b) Don't invest; risk is high relative to return.

c) Invest; stocks above the SML have very little market risk.

d) Don't invest; stocks above the SML have too much unique risk.

When calculating a project's payback period, cash flows are discounted at:

a) the opportunity cost of capital.

b) the internal rate of return.

c) the risk-free rate of return.

d) a discount rate of zero.

Reference no: EM131179608

Questions Cloud

Assets of the firm are transferred to the debt-holders : Default is a legal procedure where the assets of the firm are transferred to the debt-holders. Agency problems exist when the company is owned and managed by an individual or group of individuals who work for their best interest, but reduce the value..

Where the assets of firm are transferred to the debt-holders : A leveraged buyout involves individuals assuming large personal debt loads in order to purchase the company from a previous owner. Preferred stock is considered a hybrid because the value can increase, like common stock, but it also offers interest p..

Call option on ibm has an exercise price : A call option on IBM has an exercise price of 100, the share price S is 120. The option will exprie in 6 months, and the riskfree rate is 10% p.a. and the historical variance of the returns of IBM is 12% p.a. Before the option expires, IBM is expecte..

Yen exchange rate and pound exchange rate : Suppose the Japanese yen exchange rate is ¥110 = $1, and the British pound exchange rate is £1 = $1.55. What is the cross-rate in terms of yen per pound? Suppose the cross-rate is ¥175 = £1. What is the arbitrage profit per dollar?

When calculating projects payback period-cash flows : What would you recommend to an investor who is considering an investment which, according to its beta, plots above the security market line (SML)? When calculating a project's payback period, cash flows are discounted at:

What is the one-year standard deviation : High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 20.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent? A portfolio has a 3-year standard deviation of 18.1..

In figuring subway incremental cash flows : Subway is analyzing whether they should invest in a new type of sandwich. They have already spent $10,000 on new cookies this year. Instead of investing in the new sandwich Subway could buy a new oven for $80. In figuring Subway’s incremental cash fl..

Two independent projects-expected shortfall for portfolio : Suppose each of two independent projects has a probability of 0.01 (or 1%) of a loss of $15 million and a probability of 0.99 (or 99%) of a loss of $2 million during a one-year period. Suppose that the traders have put the projects in the same portfo..

One advantage of debt financing over equity financing is : One advantage of debt financing over equity financing is? What is the WACC for a firm using 65% equity with a required return of 15%; 35% debt with a YTM of 8%, and a tax rate of 35%?

User Account

All Pages