c. What is the economic rationale for a fee schedule that declines (in percentage terms) with increases in assets under management? 5. Describe a potential conflict of interest in each of the following four situations: a. An investment advisor whose compensátion is based on commissions from client trades b. An investment manager's use of client brokerage (“soft dollars") to purchase research or other services c. A portfolio manager of a mutual fund who purchases, for the fund, a substantial amount of stock in a small-capitalization company whose warrants the manager owns d. A research analyst who accepts reimbursement for food, lodging, and air transporta- tion expenses for a site visit from the company on which she is writing a research report Note: In formulating your answers, you should consider CFA Institute's Code of Ethics and Standards of Professional Conduct located in Appendix B in the back of this book. 6. Suppose that at the start of the year, a no-load mutual fund has a net asset va

c. What is the economic rationale for a fee schedule that declines (in percentage terms) with increases in assets under management? 5. Describe a potential conflict of interest in each of the following four situations: a. An investment advisor whose compensátion is based on commissions from client trades b. An investment manager's use of client brokerage (“soft dollars") to purchase research or other services c. A portfolio manager of a mutual fund who purchases, for the fund, a substantial amount of stock in a small-capitalization company whose warrants the manager owns d. A research analyst who accepts reimbursement for food, lodging, and air transporta- tion expenses for a site visit from the company on which she is writing a research report Note: In formulating your answers, you should consider CFA Institute's Code of Ethics and Standards of Professional Conduct located in Appendix B in the back of this book. 6. Suppose that at the start of the year, a no-load mutual fund has a net asset va

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 6Q: Suppose a firm makes the following policy changes listed. If a change means that external,...

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Suppose a firm makes the following policy changes listed. If a change means that external, nonspontaneous financial requirements (AFN) will increase, indicate this by a (+); indicate a decrease by a (−); and indicate no effect or an indeterminate effect by a (0). Think in terms of the immediate effect on funds requirements.
Many businesses finance their investment activities internally. Should internal financing affect the efficiency with which the interest rate performs its functions? No, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. Yes, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. O No, because internal financing relies on a different profit calculation. Yes, because firms are usually more anxious about what happens to money that they do not have to pay back.
Suppose a firm makes the following policy changes. If the change means that external nonspontaneousfinancial requirements (AFN) will increase, indicate this with a (+); indicate adecrease with a (-); and indicate an indeterminate or negligible effect with a (0). Think interms of the immediate short-run effect on funds requirements.a. The dividend payout ratio is increased. _____________b. Rather than produce computers in advance, a computer companydecides to produce them only after an order has been received. _____________c. The firm decides to pay all suppliers on delivery, rather than aftera 30-day delay, to take advantage of discounts for rapid payment. _____________d. The firm begins to sell on credit. (Previously, all sales had been on acash basis.) _____________e. The firm’s profit margin is eroded by increased competition; sales aresteady. _____________f. Advertising expenditures are stepped up. _____________g. A decision is made to substitute long-term mortgage bonds for…
The business risk of a firm refers to the ____. a. results from using fixed-cost sources of funds b. influence of government regulations on business earnings c. variability in the firm's operating earnings over time d. variability in the price of a firm's securities
Which of the following is true ? Select one : a . Investment bankers earn a spread based on the success of their placements when they underwrite using a best - efforts basis. b . Investment bankers earn fees based on the success of their placement when they underwrite using firm - commitment basis. c . With best - efforts underwriting, Investment bankers actos principais because they purchase securities from the issuer and sell them at a higher price, d. An investment banker is acting as principais when a firm - commitment offering of securities . e . Answers B and C only .
Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?
If managers of a company have inside information about the company’s future performances and such inside information is unknown to outsiders, then the company’s managers are most likely to use _____ to finance its project investment Group of answer choices a. the company’s retained earnings b. debt borrowing from banks c. share issuance to new investors d. there is no difference among the above three funding options
For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why? Group of answer choices A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it. B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense (Wrong Choice) C) Like depreciation, interest expense is a "non-cash" expense D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.
1 . Which investor type would most likely have high tolerance for risk, long investment horizon, and low liquidity needs? a) pension funds b) commercial banks c)individuals d) mutual funds 2. Which manager most likely receives the highest compensation through fees? a) passive manager b) fixed income asset manager c) smart beta manager d) alternative asset manager 3. A no-load mutual fund will most likely charge which of the following fee? a) redemption fee b) up front fee c) management fee d) all of the above 4. The diversification between any two assets most likely to occur when which of the following conditions is met? a) Correlation between the two assets is less than 1.0 b) Correlation between the two assets is greater than 1 c) Correlation between the two assets is strictly negative d) Correlation between the two assets is strictly zero 5. When the economy is at the lowest point of the business cycle (the "through"), which are the best industries to invest in? a) Cyclical…
Which of the following is a criticism of a policy of maximizing the firm’s return on equity (ROE)? ROE is based on after-tax earnings, not cash flows. ROE does not consider risk. ROE ignores the size of the initial investment as well as future cash flows. All of these are criticisms of ROE as a goal.
Interest rate risk is of concern to a firm's financial officer, because (Select the best choice below.) A. it is more difficult to issue securities when interest rates are low. B. changes in interest rates affect the expected return of financial instruments. C. federal government taxation increases as interest rates rise, reducing the cash available to the firm. D. inflationary periods may reduce the real earnings of the firm. E. B and D
Which of the following statements is INCORRECT ? Large investment banks finance most of their activities by using retail consumer deposits as the primary source of funds. Failure to monitor the actions of firms in a timely and complete fashion after purchasing securities in the firms exposes investors to agency costs. As a delegated monitor, a financial institution's actions reduce agency costs. Financial institutions provide economies of scale in transaction costs