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A medical group practice is considering offering a new service with risk that is greater than the current risk of the business. In evaluating this investment, the decision maker should
a. increase the internal rate of return of the project to reflect the greater risk.
b. increase the net present value of the project to reflect the greater risk.
c. reject the project, because its acceptance would increase the risk of the business.
d. ignore the risk differential if the project represents only a small fraction of the total assets of the business. e. increase the cost of capital applied to the project to make it greater than the business’s corporate cost of capital.
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This will take a little research on the Internet. Why may the bell curve be an inappropriate tool for looking at market risk? Find out what Mandelbrot (The Mis Behvior of Markets) and Taleb (The Black Swan) have to say.
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Outstanding debt of Home Depot trades with a yield to maturity of 8%. The tax rate of Home Depot is 35%. What is the effective cost of debt of Home Depot?
Which of the following bonds will have the greatest percentage decrease in value if all interest rates increase by 1 percent?
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Rank order from highest credit risk to lowest risk the following bonds, with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 4.25 percent, IB Corporate bond with yield of 6.49 percent, TC Corporate bond with yie..
A Treasury bill has a bid yield of 3.46% and an ask yield of 3.4%. The bill matures in 120 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?
A stock has had returns of 11 percent, 29 percent, 16 percent, −17 percent, 29 percent, and −7 percent over the last six years. What are the arithmetic and geometric returns for the stock?
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.25 coming 3 years from today.
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