Two firms have the same asset beta but different equity betas. The direct cause is likely:...
Two firms have the same asset beta but different equity betas. The direct cause is likely:
a. The importance of variable costs varies across these firms
b. The firms have different proportions of debt relative to equity
b. One firm’s sales are more cyclical than the other
c. All of the above
d. None of the above
Homework Answers
Two firms have the same asset beta but different equity betas. The direct cause is likely:-
b. The firms have different proportions of debt relative to equity
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Two firms have the same asset beta but different equity betas.
The direct cause is likely:...
(e) Two securities with the same standard deviations can have different betas. (f) Two securities that...
(e) Two securities with the same standard deviations can have different betas. (f) Two securities that have the same correlation coefficients with the market portfolio will have the same betas. (g) The return on a share with a beta of zero is expected to vary directly with the return on the market portfolio. (h) The equation for the security market line when the expected return on the market is 15% and the risk-free rate is 6% is rį = 9...
When firms consider issuing equity, or 'stock', which is a share in the ownership in the...
When firms consider issuing equity, or 'stock', which is a share in the ownership in the firm, the cost can be estimated by using a number of approaches. The most frequently used today is the capital asset pricing model (CAPM). This model says that the market-required return on any capital asset (equity or stock being examples of 'capital assets') can be estimated by considering the risk-free rate of return, because investing means that consumption must be delayed, plus an adjustment...
Two hypothetical firms have the same net income and the same total assets. One firm has...
Two hypothetical firms have the same net income and the same total assets. One firm has much higher Return on Equity (ROE). It must be true that: The firm with the higher ROE must have less leverage in the capital structure The firm with the higher ROE must have more leverage in the capital structure All else equal, differences in leverage will not affect ROE Increased leverage can only decrease risk, but not increase returns None of the above
Two genotypes of sunflower have different relative Fitness values despite having the same probability of survival....
Two genotypes of sunflower have different relative Fitness values despite having the same probability of survival. How can this be? A. One genotype is experiencing genetic drift. B. One genotype is affected by inbreeding. C. One genotype produces more seed per flower. D. One genotype is more likely to survive drought.
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant...
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he...
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant...
Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he...
The companies are in the same line of business and are direct competitors in a large...
The companies are in the same
line of business and are direct competitors in a large metropolitan
area. Both have been in business approximately 10 years and each
has had steady growth. Despite these similarities, the management
of each has a different viewpoint in many respects. Blair is more
conservative, and as its president said, “We avoid what we consider
to be undue risk.” Both companies use straight-line depreciation,
but Blair estimates slightly shorter useful lives than Armstrong.
No shares...
Channel Conflict Challenges This activity highlights several common channel conflict situations, across three different...
Channel Conflict Challenges This activity highlights several common channel conflict situations, across three different industries. For each situation, your task is to determine how you could minimize the level of conflict. ACTIVITY/TASK Chemists (drug stores) and Supermarkets Pharmaceutical (drug/medicine) companies make a broad range of products. Some must be sold via chemists/pharmacies (such as medicines), whereas some can be sold in supermarkets (such as headache tablets). Obviously, supermarkets offer significantly greater sales potential. This channel conflict challenge revolves around the...
QUESTION 1 (15 MARKS) Jeanne is attempting to evaluate two possible portfolios consisting of the same...
QUESTION 1 (15 MARKS) Jeanne is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolio and, in this regard, has gathered the following data: Portfolio Weights (%) Asset Beta Portfolio Portfolio B 1.30 0.70 1.25 1.10 0.90 20 NO 10 10 40 Total 100 100 Required: a) Calculate the betas for portfolios A and B. marks) (CL01:PLO2:01) Compare...
I have the answers for 1 through 3, but I am stomped on answers for 4...
I have the answers for 1 through 3, but I am stomped on answers
for 4 to 6.
Information from McCormick Your task is to make an estimate of McCormick & Company's Weighted Average Cost of Capital (WACC) to use as the discount rate for evaluating capital projects. Interest rates have risen and the CFO plans to borrow $350 million using the 20 year bond that you recommended in Project 4. For most of the past 10 years the company...
(e) Two securities with the same standard deviations can have different betas. (f) Two securities that have the same correlation coefficients with the market portfolio will have the same betas. (g) The return on a share with a beta of zero is expected to vary directly with the return on the market portfolio. (h) The equation for the security market line when the expected return on the market is 15% and the risk-free rate is 6% is rį = 9...
The companies are in the same
line of business and are direct competitors in a large metropolitan
area. Both have been in business approximately 10 years and each
has had steady growth. Despite these similarities, the management
of each has a different viewpoint in many respects. Blair is more
conservative, and as its president said, “We avoid what we consider
to be undue risk.” Both companies use straight-line depreciation,
but Blair estimates slightly shorter useful lives than Armstrong.
No shares...
QUESTION 1 (15 MARKS) Jeanne is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolio and, in this regard, has gathered the following data: Portfolio Weights (%) Asset Beta Portfolio Portfolio B 1.30 0.70 1.25 1.10 0.90 20 NO 10 10 40 Total 100 100 Required: a) Calculate the betas for portfolios A and B. marks) (CL01:PLO2:01) Compare...
I have the answers for 1 through 3, but I am stomped on answers
for 4 to 6.
Information from McCormick Your task is to make an estimate of McCormick & Company's Weighted Average Cost of Capital (WACC) to use as the discount rate for evaluating capital projects. Interest rates have risen and the CFO plans to borrow $350 million using the 20 year bond that you recommended in Project 4. For most of the past 10 years the company...
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