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Which of the following statements about real options is false?
A. The more volatile the underlying source of risk, the more valuable the option.
B. In general, the longer before a real option must be exercised, the more valuable it is.
C. If interest rates fall, the values of real options will increase.
D. Real options often add considerable value to projects, so ignoring them could lead to downward-biased NPVs and systematic underinvestment.
E. While sometimes it is not possible to quantify the value of a project with real options, managers should still think about real options in the framework of this equation: True NPV = NPV without options + NPV of options.
The standard deviation of the market-index portfolio is 20%. Stock A has a beta of 1.5 and a residual standard deviation of 30%. What would make a larger increase in the stock's variance: an increase of .15 in its beta or an increase of 3% (from 30% ..
The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. What ..
DuPont Analysis Last year, Stumble-on-Inn Inc. reported an ROE of 18 percent. The firm’s debt ratio was 55 percent, sales were $15 million, and the capital intensity was 1.25 times. Calculate the net income for Stumble-on-Inn last year.
Some analysts believe that the new Basel III minimum capital requirements are excessive and will reduce bank profitability, ceteris paribus. Summarize these arguments.
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What is the difference between lending to individual borrowers via a residential home mortgage compared to other types of consumer lending?
The activity on Daniel's credit card for one billing period is shown below. The billing period is May 1 through May 31, and the unpaid balance on May 1 was $153.75. Daniel's card has an APR of 17%. Find the average daily balance
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Joshua Trucking has chosen a new software package tied to satellite global positioning system (GPS), in order to monitor its fleet. The software will be outdated after three years and replaced.
There are two firms in the same business: Air Wolf and Red Wolf. Both are in the same risk class and each has an EBIT (Earnings Before Interest & Taxes) of $10 million. Air Wolf has no debt and Red Wolf has $4 million of debt. The cost of equity is 8..
A 4.25 percent coupon municipal bond has 13 years left to maturity and has a price quote of 105.10. The bond can be called in eight years. The call premium is one year of coupon payments. (Assume interest payments are semiannual and a par value of $5..
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