International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Which of the following scenario shows the financial manager’s financing function?
a. Prioritizing investments based on properly computed capital rationing method.
b. Capital budgeting computation and decision with regards to the planned acquisition.
c. Assessing and selecting a long-term and short-term financing tools that has a low cost.
d. Monitoring trends in operating expenses for the purpose of budget allocation.
Explain the concept of immunization within a portfolio management context. How can immunization be achieved for a fixed income strategy? What type of fund would typically employ immunization techniques? Further, can you employ immunization for asset only funds, and if so, how is this different to asset and liability types of funds? Carefully justify your answers.
Define these terms:
Survivorship bias
Tracking tolerance
Compare these alternative portfolio construction processes:
Sampling versus full replication.
Sector management versus full optimization.
Find an active equity strategy on the Internet.
List the strategy's investment objectives.
Identify the portfolio construction process.
List the strengths and weaknesses of the process.
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- (a) Discuss the value and limitations of WACC as a discount rate for use in the appraisal of capital investment projects, and the relative merits of using book values and market values to calculate WACC.arrow_forwardComparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value.arrow_forwardSeveral proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.arrow_forward
- Which of the followings is NOT in the scope of investment planning? a. To develop a risk-free investment portfolio for the client by choosing different types of asset classes. b. To analyse the risk appetite of the client c. To assess the liquidity needs of the client d. To analyse rhe financial objectives and lifestyles of the clientarrow_forwardThe 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 turnoverarrow_forwardVodafone, like many emerging telecom carriers, has only limited and infrequent access to domestic debt and equity markets. As a financial management of Ait, how would you be able to demonstrate to the Board of Directors and convince them as to why the Net Present Value and Internal Rate of Return capital budgeting decision rules sometimes provide different rank orderings of investment project alternatives?.arrow_forward
- Which of the following is a method of evaluating projects by first analyzing the project under all-equity financing and then adding in the effects of debt-financing? Multiple Choice Adjusted present value. Net present value. Pure play approach. Equity-debt approach. Modified IRR.arrow_forwardList and discuss at least two strategies that can be used to achieve a diversified investment portfolio.arrow_forward. Qualitative considerations that may influence capital investment analysis include the investment proposal's impact on all of the following except ________. product quality manufacturing flexibility employee morale income taxes The process by which management allocates funds among competing capital investment proposals is called ________. competitive analysis fund analysis capital rationing None of these choices are correct. With capital rationing, alternative proposals are initially screened by establishing minimum standards and applying which of the following methods? Cash payback and net present value methods Net present value and internal rate of return methods Cash payback and average rate of return methods Net present value and average rate of return methodsarrow_forward
- Which of the following statements is correct? a. Since investors prefer more return and less risk, one will never hold a dominated asset in the risk-return sense. In other words, if asset A has a higher expected return and lower standard-deviation than asset B, then investors would only hold asset A in their optimal portfolio. b. The IRR method correctly ranks mutually exclusive projects. c. When an investment project is evaluated today, the spending that occurred in the last year has to be included in the NPV analysis. d. The payback period criterion properly considers the time value of money. e. When there are two mutually exclusive projects, the project with the highest NPV should be chosen.arrow_forwardExplain the rationale behind the choices and objectives of portfolio manager in selection of active versus passive investment management strategy.arrow_forwardWhich of the following theory is applicable to the following situation? A manager needs to raise funds to finance a new project and prefers to use internal financing. Group of answer choices signaling theory trade off theory MM Proposition pecking order theoryarrow_forward
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