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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 D.J. Masson Corporation needs to raise $600,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 1/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo disco..
Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments. Assume each Treasury note has a par value of $1,000. Find a costless and riskless..
No-Growth Industries pays out all of its earnings as dividends. It will pay its next $3 per share dividend in a year. The discount rate is 16%. What is the price-earnings ratio of the company?
Your 68 year old mother plans to retire in 2 years and she expects to live independently for 3 years. She wants a retirement income that has, in the first year the same purchasing power as 60,000 has today. However her retirement income will be of a ..
Broussard Skateboard's sales are expected to increase by 25% from $8.0 million in 2015 to $10.00 million in 2016. Its assets totaled $3 million at the end of 2015. Broussard is already at full capacity, so its assets must grow at the same rate as pro..
What is the key difference between the primary and secondary securities markets? Why are the trades that occur on the secondary market important to a firm’s management?
Settlement date 10/30/05 Maturity date 10/30/15 Coupon rate 10% Coupons per year 2 Face value $1,000 Selling Price (% of face Value) 115% It can be called in 8 years at $1070
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What is the definition of a heuristic decision method? What might be a heuristic method for hiring someone? Explain and justify your logic
What is the risk capital associated with the commercial loan portfolio? What is the difference between economic (or risk) capital and VaR for the commercial portfolio?
Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received a dividend of $0.22 a share and also sold the shares for $42 each. What was his annualized rate of return on this investment?
Five million shares issued with a current market price of 11. Equity holders require a 8% return. $10 million face value of corporate bonds outstanding. These bonds pay an annual coupon of 6% and currently trade at a yield to maturity of 6%.
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