Corporate Investment and Finance questions

Oct 20th, 2015
Business & Finance
Price: $5 USD

Question description

1.  True --False Assume a risk averse investor and two investments. If project A has an expected return of 10% and project C has an expected return of 12%, the risk averse investor would be indifferent between the two projects. 

2.  True --False Portfolios that offer the lowest expected return for a given variance or standard deviation are known as efficient portfolios. 

3.  True --False Investors are mainly concerned with those risks that cannot be eliminated through diversification. 

4.  True --False Beta measures the marginal contribution of a stock to the risk of an undiversified portfolio. 

5.  True --False According to CAPM, all investments should plot along the security market line and the vertical distance of actual return from the line is known as gamma. 

6.  True --False The company cost of capital is the correct discount rate for any project undertaken by the company. 

7.  True --False Each project should be evaluated at its own opportunity cost of capital. The true cost of capital depends on the use to which the capital is put. 

8.  True --False The company cost of capital is the cost of debt of the firm. 

9.  True --False The company cost of capital could be the cost of equity in an all equity financed firm. 

10.  True --False It is generally more accurate to use an "industry beta" for a portfolio of companies in the same industry than to use the beta for a single company in estimating the cost of equity capital. 

11.  True --False Generally for long term project evaluation, the value to use for the risk-free rate is the short-term Treasury bill rate.  

12. True --False Most of the beta is in the industry, and firms with high operating leverage tend to have higher asset betas. 

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