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Which of the following statements is CORRECT?
a. Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management’s historical performance is evaluated.
b. Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.
c. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.
d. The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy, economies of scale exist, or if excess capacity exists.
e. The capital intensity ratio gives us an idea of the physical condition of the firm’s fixed assets.
When investing overseas, the ultimate corporate goal is the cost effective repatriation of cash flow to the parent. Define and explain the various conducts for a company to repatriate cash flows from their foreign subsidiaries.
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the
What is the beta of Stock A given the following returns of the market and Stock A in two states of the economy? Market Return (%), State of the Economy, Normal 15%, Recession 5%. Stock A Return (%), State of Economy, Normal 20%, and Recession 6%.
An orcharder spends $100,000 to planet pomegranate bushes. It will take four years for the bushes to provide a usable crop. He estimates that every year for 20 years after that he will receive a crop worth $9,500 per year. If the discount rate is 9%,..
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Given the following data for a stock: beta = 1; risk-free rate = 4%; market premium = 6%. Calculate the expected rate of return on this stock using the capital asset pricing model. A portfolio is made up of 25% of stock 1, and 75% of stock 2. Stock 1..
The South Seas Navigation Company is considering buying new sextants for its celestial navigation school. The sextants cost $34,000 and are expected to generate annual net cash flows before taxes of $7,500 per year for 9 years. Calculate the initial ..
The bonds of Microhard, Inc. carry a 10% coupon paid semiannually, a $1,000 face value and mature in 4 years. Bonds of equivalent risk yield 7%. What is the market value of Microhard’s bonds? (show procedure)
The expected return on a portfolio: can never exceed the expected return of the best performing security in the portfolio. must be equal to or greater than the expected return of the worst performing security in the portfolio.
Project A has an NPV of $20,000 and a PI of 1.2. Project B has an NPV of $10,000 and a PI of 1.3. Both projects have equal lives. Which project should be preferred if we are NOT concerned with capital rationing (that is, we are NOT concerned with bei..
Skye's earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend D0) was $2.10, and a flotation cost of 10% would be required to sell new common stock. Calculate the cost of each capital component, that is, the ..
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