Which of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from

Which of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16MC: When using the NPV method for a particular investment decision, if the present value of all cash...

See similar textbooks

Similar questions

The third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion? A. payback method B. accounting rate of return C. internal rate of return D. inventory turnover
Which of the following statements describing the elements of intrinsic valuation is most accurate? A.) When the present value of the cashflows is discounted with the appropriate rate and this present value is positive, then the asset providing these cashflows has a value to the investor. B.) The risk-free rate is the lowest rate that an investor can earn from short-term investments. C.) Cashflows may include depreciation expenses and amortization costs. D.) A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best.
What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed
Which of the following is NOT true? In risk-neutral valuation the risk-free rate is used to discount expected cash flows Options can be valued based on the assumption that investors are risk neutral Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate
Which of the following is a true statement regarding the future worth of a single investment alternative? (a) It will be equal to both the present worth and the annual worth if the same discounting interest rate is used. (b) Choose to invest if the calculated amount is less than zero at the investment rate of return. (c) It will yield a recommendation consistent with the present worth and annual worth methods if the same discounting interest rate is used.(d) It cannot be used to evaluate single investment alternatives.
Suppose that the price of an asset equals its fundamentalvalue. What behavioral features might then ensure that investors continue totrade? Answer this question specifically in the context of the models that havebeen taught in your course.
Explain the following three variables which influence the overall rate of return on alternative investments: The real risk-free rate of return The nominal risk-free rate of return The risk premium on the investment
Which is least likely correct about security valuation?a. The calculated or determined value considers the stream of future cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risks involved and the opportunity cost.d. The calculated or determined value allows the investors to evaluate whether a security isovervalued or undervalued.e. All of the above
Identify the one true statement. a. The B/C method determines the ratio of the present worth of benefits to the negative of the future worth of the investments. b. The CW method determines the present worth using a finite planning horizon. c. The IRR method determines the interest rate that yields a future worth of zero. d. The ERR method determines the interest rate that yields a present worth of zero.
Whether the following statement is true or wrong. Briefly explain your answer. "It is impossible to have an asset that is risk-free for all investors.” [Hint: Consider the relationship between the investment period of investors and asset maturity, inflation and other factors.)
When comparing NPV and IRR, which is incorrect? With NPV, the discount rate can be adjusted to take into account increased risk and the uncertainty of cash flows With IRR, cash flows can be adjusted to account for risk NPV can be used to compare investments of various size or magnitude Both NPV and IRR can be used for screening decisions
Which of the following statements regarding non-systematic risk, systematic risk and total risk is/are true? Select one or more:a. As the number of assets within a portfolio increases, the total risk of a portfolio will go to zero.b. A riskfree asset must have zero non-systematic risk.c. A well diversified portfolio must have zero systematic riskd. Under the Capital Asset Pricing Model (CAPM).an asset with zero systematic risk must have expected return equal to the riskfree rate.