The M&M Model of Modigliani and Miller is based upon the assumptions that: C. Capital markets are diversified D. Capital markets unique B. Capital markets are imperfect A. Capital markets are perfect

Q: True or False In perfect capital markets, with no taxes or other market imperfections, investors…

A: Perfect capital market is a market place where there is a large number of buyers and sellers and no…

Q: Which of the following statements is false? The cost of debt securities is highest due to their…

A: Part (a) Answer: The correct option is (4) None of the above. Because, cost of debt securities are…

Q: Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy…

A: Source of raising capital include: Equity financing Debt financing Loans from financial…

Q: Which of the following statements about the Fama-French three-factor model is wrong: A. Company…

A: Fama- French model is an advanced version of CAPM. It is a three more factor model which is more…

Q: Which of the following statements about diversification is INCORRECT? A) Diversification is…

A: Diversification is used as a strategy to manage risks.

Q: Capital Asset Pricing Model is based on certain assumptions, which have been criticized after…

A: Asset pricing is a linear function of the beta value of market return: When the market returns…

Q: The advantage of risk-sharing of financial institutions is   Select one: reduced liquidity…

A: Financial institutions like insurers which share risk of others have advantages to customers.

Q: Is the claim that lower company taxes adding to investments correct or is it debatable given the…

A: The money left after expenditure is savings. Savings are used by the individuals for investment. Not…

Q: While isolated computation of cost of capital can be done, the computation of WACC can provide a…

A: Cost of capital is used in “capital budgeting” in order to compute the cost of a company’s funds or…

Q: Which of the following statements is false? (You may select more than one answer.)a. The total-cost…

A: Capital budgeting refers to the process by which long-term investment proposals are evaluated based…

Q: Which one of the following statements about book value and market value is correct? Group of answer…

A: Book values are based on the historical performance of the company. But market value gives the…

Q: Financial theory (and the narrative in the textbook) indicates that NPV is the theoretically correct…

A: Introduction: This question is related to concept of Net present value (NPV) in Capital budgeting.…

Q: In determining the optimal weighted average cost of capital, an MNC can never have too much debt.…

A: The Weighted Average Cost of Capital is always post tax. It is calculated with the help of following…

Q: In the case of a perfect capital​ market, according to Modigliani and Miller Proposition I and​ II,…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: Why might it be rational for a small firm that does not have access to the capital markets to use…

A: Payback period is simply the average period by which the initial investment can be recovered. It…

Q: Shortening the cash conversion cycle always enhances the shareholder value

A: Note: Hi! Thank you for the question As per the honor code, We’ll answer the first question since…

Q: Profitable projects are difficult to find.    a. Efficient capital markets b. The curse of…

A: Profitable project are difficult to find just because of severe competition world wise, because in…

Q: According to Capital Asset Pricing theory (CAPM), in a competitive marketplace: Group of answer…

A: Capital Asset Pricing Model(CAPM) is an investment tool used to determine the fair valuation of…

Q: A very high degree of capital market efficiency   a. mispricing never occurs.     b. means share…

A: In this question we have four options for the given statement and we need to choose correct option.…

Q: The capital asset pricing model assumes a) all investors are irrational. b) investors have…

A: Capital Asset Pricing Model states that the return on equity shares is determined by the amount of…

Q: Which öf the föllowing statements about arbitrage is correct? Select one: O a. A risk averse…

A: Arbitrage is the position when a person buy some product from one market and sold it in another…

Q: In a world of much friction and imbalance, discuss how Miller and Modigliani (M&M) arrive at the…

A: Miller and Modigliani (M&M) Approach is a capital theory approach propounded in 1950 which…

Q: Which of the following is a disadvantage of the internal rate of return criterion? Select one: a.…

A: Internal rate of return (IRR): At IRR, cash outflow will be equal to the present value of cash…

Q: Firms will take investments only when expected risks are remunerated by expected profit. *   a.…

A: Every investment comes with its own set of benefits and risks. Every company must make a decision on…

Q: In general, an MNC's size, its access to international capital markets, and international…

A: The answer and the explanation is provided below:

Q: Generally, the ____ is considered to be a more realistic reinvestment rate than the ____.   a.…

A: Cost of capital is the required rate for make capital budgeting decision

Q: Which of the following is a criticism of a policy of maximizing the firm’s return on equity (ROE)?…

A: The question is based on the concept return on equity (ROE) ROE is a part of ratio analysis to find…

Q: Which of the following is TRUE about liquidity? a. All assets should be put in liquid asset so that…

A: The simplicity with which an asset, or security, might  be changed into immediate cash without…

Q: The Cost of capital is the Select one: a. Average expected return on capital b. Highest expected…

A: Businesses and corporations operate on a large scale and require funds every now and then to fuel…

Q: 8. Which of the following statements is FALSE? A) In general, the difference between the cost of…

A: Capital budgeting: Capital budgeting is a financial technique that is used to evaluate long-term and…

Q: Consider the trade-off theory of capital structure and the market timing theory in answering this…

A: The capital structure theories are related to the issuing of debt and equity. The ratio between debt…

Q: The advantage of risk-sharing of financial institutions is Select one: reduced liquidity reduced…

A: Risk sharing : Risk sharing is a situation where the risk is hedged by the investors by distributing…

Q: Which of the following statements is most correct?

A: Factors or risk that affect the entire market is known as Systematic Risk. As a result, systematic…

Q: Which of the following is NOT an assumption we have to make in order to use the WACC to carry out an…

A: There are some assumptions we have to make in order to use the Weighted Average Cost of capital as a…

Q: Both the capital asset pricing model and the arbitrage pricing theory rely on the proposition that a…

A: The two methods i.e. the CAPM and the APT models are used to analyze the risk and return from the…

Q: 1 which is INCORRECT about a perfect capital market? there is no financial frictions such as…

A: The perfect market is defined as the market under which there are never any opportunities of…

Q: Capital budgeting decisions, once made, are not easy to reverse because of the huge investments…

A: Capital budgeting decision are decision regarding to investment in long term projects of the…

Q: A critical assumption in the classical model is that   a. markets are perfectly competitive in the…

A: Perfect competition is a situation in which all the companies earn normal profits as buyers and…

Q: Why might it be rational for a small firm that does not have access to the capital markets touse the…

A: The payback period in one of the capital budgeting technique and it calculates the time period for…

Q: The only way the investor can get above average profit through investment in different markets by…

A: Intrinsic value of a stock is the theoretical or real value of the stock that is calculated using…

Q: In the presence of the ‘free rider’ problem ,private markets will always produce inefficient…

A: Answer

Q: Riskless, costless arbitrage is the cornerstone of the efficient market hypothesis. However,…

A: Unavoidable Risk: There may be some improbable but significant risks, such as the possibility that…

Q: The rationale for funds transfer pricing is that there are: Group of answer choices D. Less chances…

A: Sisters subsidiaries system of transfer pricing (based on the going market prices)  allows for the…

Q: In the strong form of the market accoarding to the Efficient Market Hypothesis investor can earn…

A: Efficient market hypothesis is the theory that explains that stock prices reveal all the…

Q: Which of the following statements is FALSE? When a firm faces financial distress, it may choose not…

A: Agency cost id the internal cost of the company which is associated with the relationship between…

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.