Assignment Instructions/ Description
1. Opportunity Cost In the context of capital budgeting, what is an opportunity cost?4. Depreciation Given the choice, would a firm prefer to use MACRS depreciation or straight-linedepreciation? Why?5. Net Working Capital In our capital budgeting examples, we assumed that a firm would recover all ofthe working capital it invested in a project. Is this a reasonable assumption? When might it not be valid?
Chapter 91. Forecasting Risk What is forecasting risk? In general, would the degree of forecasting risk be greaterfor a new product or a cost-cutting proposal? Why?2. Sensitivity Analysis and Scenario Analysis What is the essential difference between sensitivityanalysis and scenario analysis?6. Real Options Why does traditional NPV analysis tend to underestimate the true value of a capitalbudgeting project?
Chapter 10CONCEPT QUESTIONS1. Investment Selection Given that Nymox Pharmaceutical was up by 720 percent for 2015, why didn’tall investors hold Nymox?2. Investment Selection Given that Chesapeake Energy was down by 76 percent for 2015, why did someinvestors hold the stock? Why didn’t they sell out before the price declined so sharply?3. Risk and Return We have seen that over long periods of time stock investments have tended tosubstantially outperform bond investments. However, it is not at all uncommon to observe investorswithlong horizons holding their investments entirely in bonds. Are such investors irrational?
Chapter 115. Expected Portfolio Returns If a portfolio has a positive investment in every asset, can the expectedreturn on the portfolio be greater than that on every asset in the portfolio? Can it be less than that onevery asset in the portfolio? If you answer yes to one or both of these questions, give an example to
support your answer.6. Diversification True or false: The variances of the individual assets in the portfolio are themost important characteristic in determining the expected return of a well-diversified portfolio.Explain.7. Portfolio Risk If a portfolio has a positive investment in every asset, can the standard deviation on theportfolio be less than that on every asset in the portfolio? What about the portfolio beta?
Chapter 124. Market Efficiency Implications Explain why a characteristic of an efficient market is that investmentsin that market have zero NPVs.5. Efficient Market Hypothesis A stock market analyst is able to identify mispriced stocks by comparingthe average price for the last 10 days to the average price for the last 60 days. If this is true, what doyou know about the market?6. Semistrong Efficiency If a market is semistrong form efficient, is it also weak form efficient? Explain.
Chapter 148. Financial Leverage Why is the use of debt financing referred to as financial “leverage”9. Homemade Leverage What is homemade leverage?10. Capital Structure Goal What is the basic goal of financial management with regard to capitalstructure?
Chapter14. International Borrowing If a U.S. firm raises funds for a foreign subsidiary, what are thedisadvantages to borrowing in the United States? How would you overcome them?15. International Investment If financial markets are perfectly competitive and the Eurodollar rate isabove that offered in the U.S. loan market, you would immediately want to borrow money in the UnitedStates and invest it in Eurodollars. True or false? Explain.16. Eurobonds What distinguishes a Eurobond from a foreign bond? Which particular feature makes theEurobond more popular than the foreign bond?
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