Finance Assignment | Homework For You |

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Finance Assignment | Homework For You |

Part True or false and fil in the blank (20 points) Instruction: Write T for true and F for false. Each question is worth 2 points. If you answer all true or all false, you will receive no credit for this section.
1. In cost of capital estimation, the following should hold true: Re Res > Ro.
2. NPV and IRR rules will always lead to the same decision in choosing independent projects.
3. Payback period is the time period that a project breaks even in term of today’s value.
4. [Modified from Extra Multiple Choice in Canvas] A firm is considering a project which would increase inventory by $35,000 and accounts payable by $30,000. This is a net source of cash (l.e., there is a cash inflow).
5. For the past 80 years, an average inflation rate is 3% and an average return on T-bills is 4%. If mid-cap stocks provide 13% return on average, we can conclude that an average risk premium for mid-cap stocks is 10%.
6. [Modified from Q#5 of page 343] A stock market analyst is able to identify mispriced stocks by comparing the average price for the last 10 days to the average price for the last 60 days. This shows that the stock market is inefficient.
7. Martha Stewart got a tip from her friend that his company’s stocks would drop. She then sold the stocks before the information went public. As a result, she earned more than other investors who did not have the information. This is an evidence showing that the stock market is fully efficient.
8. Big Widget just announced that its quarterly earnings fell below analysts’ expectation. This is an example of diversifiable risk.
9. Beta of MSFT is 0.7 and beta of RCL is 1.33. One can conclude that unsystematic risk of RCL is higher than unsystematic risk of MSFT.
10. If risk premium to beta ratio of GOOG is 2 while the ratio of APPL is 3, investors should buy AAPL and sell GOOG. Get Finance homework help today
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