For researchers to consider an investment strategy to have delivered abnormal returns, it must have exceeded the return on its benchmark plus: the return on the risk-free asset. transaction costs and the highest marginal income tax rate. transaction costs and information acquisition costs. All of the above answers are correct. None of the above answers are correct.

For researchers to consider an investment strategy to have delivered abnormal returns, it must have exceeded the return on its benchmark plus: the return on the risk-free asset. transaction costs and the highest marginal income tax rate. transaction costs and information acquisition costs. All of the above answers are correct. None of the above answers are correct.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 3MC: The third step for making a capital investment decision is to establish baseline criteria for...

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Similar questions

When different investment rules give conflicting answers, then decisions should be based on the Net Present Value rule, as it is the most reliable and accurate decision rule True False
An investment should be rejected if the IRR is Group of answer choices - equal to the required rate of return - greater than the accounting rate of return - less than the required rate of return - greater than the required rate of return
Which of the following is not a measure that management can use in evaluating and controlling investment center performance? a.residual income b.negotiated price c.income from operations d.rate of return on investment
Which of the following is a disadvantage of the IRR project evaluation method? Select one: a. It does not take into account the time value of money. b. If there are negative cash flows after positive cash flows, there may be zero or multiple internal rates of return. c. It does not make adequate allowance for risk. d. It focuses on accounting profit rather than cash flow as the source of value.
Residual income is better measure for performance evaluation of an investments center manager than return on investments because The problems associated with measuring the assets base are eliminated Desirable investments decisions will not be neglected by high-return divisions The arguments about the implicit cost of interest are eliminated Only gross book value of assets needs to be calculated
In choosing where to invest, return and risk for an investment must be compared. It is not sufficient to choose an investment based only on return without taking risk into consideration. There are two methods or measures that compare return and risk. State these two methods, the formula for each and the criteria used in evaluating alternative investment of each method.
Identify and explain the criticisms of using return on investment (ROI) as the onlyperformance measure.
Many firms still use the internal rate of return rule instead of net present value. When used properly, the two rules lead to the same decision, but the internal rate of return rule has several pitfalls that can trap the unwary.Explain with reasons, THREE (3) pitfalls of using the internal rate of return rule in appraising capital investment.
Which of the following is a disadvantage of the internal rate of return criterion? Select one: a. It is not a true rate of return. b. It uses an arbitrary benchmark cutoff rate. c. It ignores time value of money, cash flows, and market values. d. It cannot be used to rank independent projects. e. It may lead to incorrect decisions when comparing mutually exclusive investments.
Relative valuation has several disadvantages. Which of the following is NOT? a. There is the potential to provide inconsistent estimates arising from using different price ratios. b.Relative valuation is affected by the market mood such as when the comps is overvalued, the resulting valuation of the object will be a lower estimate. c. When applying relative valuation, the analyst may remove nonrecurrring income and loss items such as loss from sale of a cash-generating unit; this will improve the valuation process at the expense of time required.d.When biased stock brokers prepare relative valuation reports, it is likely that they will choose a price ratio that will encourage investors to buy stocks.
A disadvantage of using the accounting rate of return to evaluate investment alternatives is that Group of answer choices A. It is superior to IRR. B. When net incomes vary from year to year, the ARR will also vary across years, making the project seem desirable in one year and not another. C. It considers the time value of money. D. It is easy to understand and it allows comparison or projects. E. Using ARR has no disadvantages.
Which of the following statements is TRUE about risk-free investment? a. Return in risk-free investment is high, but the investment manager charges a fee for the guarantee. b. It always provides inconsistent return as consistent return requires higher risk c. It provides lower returns as higher return requires higher risk.