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- Suppose you are the president of a small, publicly-traded corporation. Since you believe that your firm's stock price is temporarily depressed, all additional capital funds required during the current year will be raised using debt. In this case, the appropriate marginal cost of capital for use in capital budgeting during the current year is the WACC. True or FalseTrue or false 1.The free cash flow to equity will always be higher than the net income of the firm, because depreciation is added back. 2.Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy. 3. Preference shares combine the fixed income features of bonds with the same price appreciation potential as ordinary shares. 4. Identify any one behavioural bias in each of the following statements: a) Mary writes the following letter to an investment columnist: “I invested quite a bit of money (R26 000) in Intel stock. Of course, like most technological stocks, it has been struggling, and on paper I am in trouble. Do you think it will ever reach the R80 that I paid for it? I really hate to cash it in for such a big loss and I don’t trust it enough to buy it at the low price (R8) it is now trading for. I feel like the company shows promise, but I am certainly not astute in…Please answer with reason for all why the option is correct and why the other options are incorrect Which of the following practice is most likely to undermine inter-period equity? Delay the recognition of expenses incurred to fund a project until a future period in which payment is made. Issuing bonds to finance construction of a new school. Paying salaries out of the current year budget. Recognizing gains or losses on marketable securities as prices increase or decrease.
- Choose option a,b,c,d,e for the following: Question 4 - Your income is exempt from taxes. Considering this fact, which of the following is true? a. You will always prefer your firm to retain its earning and grow faster so that you can enjoy capital gains. b. You will always choose your stocks bases on whether they offer a high or a low dividend payout. c. You will always go for low dividend – high growth stocks. d. You will want to invest in tax free government bonds. e. You will be indifferent between receiving dividends or capital gains.A friend of yours owns a company that is about to get a large government contract. He tells you this inside information about the contract and also mentions that it should make the company's stock price increase dramatically. If you invest based on this inside information, then you are implicitly saying that stock markets are inefficient in which context? Question 5 options: weak form efficient market theory semi-strong form efficient market theory strong form efficient market theory(a) Identify and briefly describe two phases of the capital budgeting process. (b) Would saving time by skipping one of these phases in the capital budgeting process make sense financially? Financially, why would a company: (a) increase its dividend; (b) buy back some of its common stock shares; (c) pay down some of its debt; (d) increase its use of internal financing; (e) take the public firm private? Explain how a company could: (a) avoid a backlog of orders when sales exceed expectations; (b) avoid product defects on new products; (c) offer more credit to its customers when it already has a bad debt problem; (d) improve its credit rating with suppliers after paying some late; (e) lower its cost of financing when the market interest rate has increased. FE5 Describe a business practice that would help a company manage each of the following financial risks: (a) liquidity risk; (b) interest rate risk; c) credit risk.
- Elon is a financial manager with Wealth Creation, an investment advisory company. He must select specific investments, for example, stocks and bonds from a variety of investment alternatives. Which of the following statements is most likely to be the objectiuve function in this scenario? Your choice: Maximization of tax dues Maximization of expected return Minimization of the number of stocks held Maximization of investment risk Submit 3/6 QsAssume that the tax on dividends and the tax on capital gains is the same. All else equal, what would a prudent investor prefer? A. More information is needed. B. The prudent investor would prefer dividends—a dollar today is always worth more than a dollar to be received in the future. C. The prudent investor would be indifferent between receiving dividends or capital gains. D. The prudent investor would prefer capital gains—the capital gain tax liability can be deferred until gains are realized.Which of the following is CORRECT? Select one: a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation. b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM. d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. e. All of the above are correct. Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must…
- 1a. Consider the statement that an asset with higher risk must earn higher risk premium. Is it true or false? Please explain. b) A company with growth opportunities has dividend growth every year. Do you agree or not? Please explain. c) The Trump administration lowered corporate tax rate and this is a monetary policy. Is it true or false? If false, what type of policy is it.TRUE OR FALSE: 1.A Financial Statement is not necessary for corporations over $10M in annual revenue. 2.It is possible to determine the future value (FV) of an investment deposit into fixed income security. 3. Investing in stock is a form of fixed income investing.Which statement is true? O A. Financial statements reflect economic costs. O B. Year-over-year decreases in liabilities are sources of cash. O C. A stock with a beta of 1.00 has the total risk of the market portfolio. O D. Shareholders have the prior claim to the cash flows of a corporation. O E. None of the above are true.
