QUESTION 11Which of the following is not a problem of using the CAPM in the investment appraisal process?O A. The proxy company's equity beta includes financial riskO B. Proxy companies often undertake a portfolio of business activitiesOC. The CAPM is a single-period model, but investment appraisal is multi-period.O D. The CAPM model relies on a number of assumptionsO E. Proxy company information is not publicly available QUESTION 12A company has the choice of either buying a machine outright for £200,000 which it will scrap in three years time for nothing,but which will attract a 100% first year capital allowance: or of leasing the machine for three years for an annual payment of£60,000 pyable in advance at the start of each year. The company receives tax benefits and the first tax benefit, whetherleasing or borrowing, occurs in year 1. The company can borrow at a pre-tax rate of 10% and corporation tax stands at 30%.Round up your answer to the néarest £100. Which óf the following is true?O A. Leasing is beneficial by £78,800O B. Leasing is beneficial by £22,700OC. Leasing is beneficial by £17,500OD. Buying is beneficial by £22,700O E. Buying is beneficial by £24,600

Option A is correct. Proxy company's beta includes finacial risk, this statement is not a problem…

QUESTION 11 Which of the following is not a problem of using the CAPM in the investment appraisal process? O A. The proxy company's equity beta includes financial risk O B. Proxy companies often undertake a portfolio of business activities OC. The CAPM is a single-period model, but investment appraisal is multi-period. O D. The CAPM model relies on a number of assumptions O E. Proxy company information is not publicly available

QUESTION 11 Which of the following is not a problem of using the CAPM in the investment appraisal process? O A. The proxy company's equity beta includes financial risk O B. Proxy companies often undertake a portfolio of business activities OC. The CAPM is a single-period model, but investment appraisal is multi-period. O D. The CAPM model relies on a number of assumptions O E. Proxy company information is not publicly available

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 2P

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The data in Exhibit 11.3 on industry median betas suggest that firms in the following three sets of related industries have different degrees of systematic risk. REQUIRED a. For each matched pair of industries, describe factors that characterize a typical firms business model in each industry. Describe how such factors would contribute to differences in systematic risk. b. For each matched pair of industries, use the CAPM to compute the required rate of return on equity capital for the median firm in each industry. Assume that the risk-free rate of return is 4.0% and the market risk premium is 5.0%. c. For each matched pair of industries, compute the present value of a stream of 1 dividends for the median firm in each industry. Use the perpetuity-with-growth model and assume 3.0% long-run growth for each industry. What effect does the difference in systematic risk across industries have on the per-dollar dividend valuation of the median firm in each industry?
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