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Using the WACC to evaluate all projects may lead managers into accepting high-risk projects that do not compensate adequately for risk and into rejecting low-risk projects that compensate fully for the level of risk but may not have particularly high rates of return. Describe the situations when using a WACC is not appropriate and how these incorrect decisions may be made.
1.Describe why firms in the airline industry have so much debt compared to other industries. What industry has the lowest profit margin? What industry converts the greatest amount of sales dollars into profit?
2.What is an incremental cash flow for a project? What concepts do we need to examine to help understand how to estimate the incremental cash flow of a project? What else is needed for deciding on whether or not to choose a project?
3.Most companies do not have the resident expertise to complete an initial public offering (IPO), so they hire an investment banker to help accomplish the sale. Describe three significant tasks that an investment banker provides.
4. Describe the relationship between the yield to maturity and the coupon rate of a bond.
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Mammoth Corporation is considering a 3-for-2 stock split. It currently has the stockholders' equity position shown. The current stock price is $120 per share. The most recent period's earnings available for common stock are included in retained ea..
this exercise will quiz you about terminology used in this appendix.at list of accounting terms with which you should
What should be the average beta of the new stocks added to the portfolio? Round your answer to two decimal places.
What was the arithmetic average annual return in real terms?
Suppose a bank needs to borrow (not lend) $20 million for 3 months starting in December 2016. If the bank wants to lock in the borrowing interest rate now, what should it do? Be specific about.
Currently, the beta of a stock fund is 1.2. Suppose the fund manager wants to reduce the beta of this portfolio. Which is an effective way to achieve such goal?
A person wanting to lock in an exchange rate for the payment of a foreign-currency obligation to someone else would:
using the weighted average cost of capital wacc to evaluate all projects may lead managers into accepting high-risk
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