1. In discounted cash flows method, the value of investment opportunities is highly dependent on the value that the asset will generate from now until the future. True False 2. Discounted cash flows analysis can be done by determining the present value of the Net Cash Flows of the investment opportunity. True False 3. The amount that should be included in determining the value of the asset is the amount of cash that will be available for the claims of the equity owners and creditors. True False 4. Relevance and reliability of information are important in financial modelling. True False 5. In financial modeling, the usual growth indicators used are inflation, population growth and GNP/GDP growth. True False 6. In financial modelling, you need the inflation to be used as driver for certain operating and capital expenditures. True False 7. The value of a firm's invested capital is Php300 million. Its return on invested capital is 12 percent, and its WACC is 10.5 percent. What is the economic value added/economic profit? 8. John’s Merchandising has one class of preferred stock outstanding, a Php3.75 cumulative preferred stock, for which there are 546,024 shares outstanding. If the price of this stock is Php72, what is the estimate of John’s cost of preferred equity? 9. The Gearing Company has an after-tax cost of debt capital of 4 percent, a cost of preferred stock of 8 percent, a cost of equity capital of 10 percent, and a weighted average cost of capital of 7 percent. Gearing intends to maintain its current capital structure as it raises additional capital. In making its capital-budgeting decisions for the average-risk project, the relevant cost of capital is____________.
1. In discounted cash flows method, the value of investment opportunities is highly dependent on the value that the asset will generate from now until the future. True False 2. Discounted cash flows analysis can be done by determining the present value of the Net Cash Flows of the investment opportunity. True False 3. The amount that should be included in determining the value of the asset is the amount of cash that will be available for the claims of the equity owners and creditors. True False 4. Relevance and reliability of information are important in financial modelling. True False 5. In financial modeling, the usual growth indicators used are inflation, population growth and GNP/GDP growth. True False 6. In financial modelling, you need the inflation to be used as driver for certain operating and capital expenditures. True False 7. The value of a firm's invested capital is Php300 million. Its return on invested capital is 12 percent, and its WACC is 10.5 percent. What is the economic value added/economic profit? 8. John’s Merchandising has one class of preferred stock outstanding, a Php3.75 cumulative preferred stock, for which there are 546,024 shares outstanding. If the price of this stock is Php72, what is the estimate of John’s cost of preferred equity? 9. The Gearing Company has an after-tax cost of debt capital of 4 percent, a cost of preferred stock of 8 percent, a cost of equity capital of 10 percent, and a weighted average cost of capital of 7 percent. Gearing intends to maintain its current capital structure as it raises additional capital. In making its capital-budgeting decisions for the average-risk project, the relevant cost of capital is____________.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. In discounted cash flows method, the value of investment opportunities is highly dependent on the value that the asset will generate from now until the future.
True
False
2. Discounted cash flows analysis can be done by determining the present value of the Net Cash Flows of the investment opportunity.
True
False
3. The amount that should be included in determining the value of the asset is the amount of cash that will be available for the claims of the equity owners and creditors.
True
False
4. Relevance and reliability of information are important in financial modelling.
True
False
5. In financial modeling, the usual growth indicators used are inflation, population growth and GNP/GDP growth.
True
False
6. In financial modelling, you need the inflation to be used as driver for certain operating and capital expenditures.
True
False
7. The value of a firm's invested capital is Php300 million. Its return on invested capital is 12 percent, and its WACC is 10.5 percent. What is the economic value added/economic profit?
8. John’s Merchandising has one class of preferred stock outstanding, a Php3.75 cumulative preferred stock, for which there are 546,024 shares outstanding. If the price of this stock
is Php72, what is the estimate of John’s cost of preferred equity?
9. The Gearing Company has an after-tax cost of debt capital of 4 percent, a cost of preferred stock of 8 percent, a cost of equity capital of 10 percent, and a weighted average cost of capital of 7 percent. Gearing intends to maintain its current capital structure as it raises additional capital. In making its capital-budgeting decisions for the average-risk project, the relevant cost of capital is____________.
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