QUESTION 36When evaluating an investment or project, Companies need to consider risk as a factor because:OA. A. All projects carry the same level of riskB. B. All projects do not carry the same level of riskC.C. Risk allows a company to measure the relative Net Present Value of an investmentOD. D. Both B & CQUESTION 37The Coefficient of Variation is the best measure of risk because:OA. A. It is a relative measure of risk, allowing companies to measure projects with different expected values.B. B. Is an absolute measure of riskO C.C. Is harder to calculateOD. D. Is never usedQUESTION 38Standard Deviation is an absolute measure of risk becauseA. It allows companies to measure projects with different expected valuesB. It measures risk in an absolute fashion, risk is measure based on the expected value.C.It can only be used to compare projects with the same expected value.D. Both B & C

QUESTION 36 When evaluating an investment or project, Companies need to consider risk as a factor because: OA. A. All projects carry the same level of risk OB. B. All projects do not carry the same level of risk Oc.C. Risk allows a company to measure the relative Net Present Value of an investment OD. D. Both B & C

QUESTION 36 When evaluating an investment or project, Companies need to consider risk as a factor because: OA. A. All projects carry the same level of risk OB. B. All projects do not carry the same level of risk Oc.C. Risk allows a company to measure the relative Net Present Value of an investment OD. D. Both B & C

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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16. Which of the following statements regarding the net present value rule and the rate of return rule is false? A. Accept a project if NPV > cost of investment.B. Accept a project if NPV is positive.C. Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market.D. Reject a project if NPV is negative.
Remaining : mcq's 34) weakness of the net present value/payback method is that ___. a.because it recognizes the riskiness of various projects, it can develop multiple outcomes b.it is a complicated calculation c.it is subjective d.it is directly related to .
QUESTION 5 Exhibit 6.15 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA) = 14% E(RB) = 16% (σA) = 13% (σB) = 18% WA = 0.4 WB = 0.6 COVA,B = 0.0024 Refer to Exhibit 6.15. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ i ), covariance (COVi,j), and asset weight (Wi) are as shown above? a. 15.2% b. 13.8% c. 16.8% d. 14.6% e. 15.0%
1) 43- Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost. r: 7.50% Year 0 1 2 3 4 CFS −$1,100 $550 $600 $100 $100 CFL −$2,700 $650 $725 $800 $1,400 a. $182.52 b. $171.42 c. $160.31 d. $149.21 e. $138.10 2) 44- Buchholz Corporation follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to…
QUESTION 17 WACC can be used in investment appraisal in all the following circumstances, except: A. Business risk of investment project is similar to business risk of existing operations. B. Incremental finance is raised in proportions that preserve existing capital structure. C. Required return of existing finance sources is not affected by new investment project. D. Use of CAPM will produce a conflicting result
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% i. What is each project’s Payback and discounted payback periods and interpret these numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.
6. Which of the following statements is / are TRUE about the payback period method of investment appraisal? (i) It uses discounted profits (ii) It may result in a project with a negative NPV being accepted (iii) It looks at the whole life of the project (iv) It favours lower risk projects (on the basis that risk is time related) a (i) and (iii) b (i) and (iv) c (ii) and (iv) d (ii) and (iii)
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.
26.Assess the trade-offs that investors face when making investment decisions, and provide one example of such a trade-off
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% Given the information above, you are required to answer the followings:i. What is each project’s Payback and discounted payback periods and interpret these numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects. (b) Kindly Provide brief answers to the following:i. What is the difference between…
Question 3 A firm is looking to evaluate the income coming from a project. The project has alowest possible income of $1,036.31, a likely income of $2,113.29 and a maximum income of $2,904.68. What is a the risk mitigated income that a firm should use their analysis? Enter your answer below (no $ sign), and show your work in your drobox submission. Your Answer:
7 Rate of Return (ROR) is an important factor to consider to determine the gain or loss of an investment over a specified period of time. Please provide an explanation of the other evaluation metrics excluding the rate of returns to analyze precise profit and loss of an investment.

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