a) What is the unlevered or asset beta for the public company? b) What is the levered beta or the estimated beta of the private company?

Q: The financial leverage implications for company analysis?

A: 1. Financial Leverage: To finance the New Assets management borrowed money. it is called financial…

Q: Should the goal of the firm be to maximize the price of its stock?

A: Every company has its own vision and mission statement. Having a vision paves way for achieving the…

Q: operating

A: Operating leverage is a leverage which helps us to know the cost structure of a company & also…

Q: When is a firm's investment pool equal to the MARR?

A: The internal rate of return (IRR) is a capital budgeting metric used to gauge the benefit of…

Q: What are the factors favoring a high-dividend policy?

A: Dividend refers to portion of net earnings of the company that is shared with common stock holders…

Q: a. What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1?

A: Beta coefficient shows the systematic risk of the assets. The beta factor shows the systematic risk…

Q: What graphs/equations expalin how a firms operating leverage affects its beta?

A: Operating leverage refers to the extent to which a firm uses fixed costs in its operations, while…

Q: Which of the following is not a determinant of investment? a) The efficiency of capital equipment…

A: To increase capital assets, business do investments in property, fixed assets, financial market,…

Q: Explain the Modigliani-Miller Payout Policy Irrelevance Proposition. What are the implications of…

A: Payout Policy refers to the manner of ways by which firm return out their part of the capital to…

Q: Is an investment pool is equivalent to a firm's treasury? How?

A: Introduction Investment is an important financial activity of an organisation. Every Organisations…

Q: A. Why is the goal of financial management to maximize the current share price of the company's…

A: The answer for the question on the financial management is discussed hereunder : What is Financial…

Q: Which of the following is Return on equity. O Economic value. O Market capitalization. O Firm…

A: There are many tools to measure the performance and compare with other firms and that will help in…

Q: market capitalization is higher, lower, equal to total shareholders' equity

A: Market capitalization is computed by multiplying the current market price of the shares with the…

Q: 3. How large is the gap between Beta(Asset) and Beta(Leverage)? What is the impact of their…

A: Beta is a metric used by shareholders to correlate the uncertainty of a securities or portfolio to…

Q: How do investment opportunities affect dividend policy?

A: The question is based on the concept of investment policy and its impact on dividend policy of a…

Q: You are attempting to calculate cost of capital for a private firm, where beta is unknown. How would…

A: Beta of a company measures the systematic risk of the security as compared to the overall market.…

Q: Write down what are the disadvantages of shareholders equity?

A: Equity is one of the common sources to raise finance. Whenever a company requires finance it can…

Q: When trying to estimate the cost of equity for a firm using the CAPM, it is possible to find the…

A: The capital asset pricing model (CAPM) is one of the methods used to compute the cost of equity…

Q: What is a corporate beta? How does it differ from a market beta?

A: Beta refers to the measure of systematic risk or volatility of a portfolio or of security compared…

Q: 3) Which three of the following factors are most likely to lead to a stable dividend policy? A)…

A: The term dividend refers to that part of profits of a company which is distributed by the company…

Q: not an advantage of the NPV investment appraisal technique

A: Option A is wrong because increase in shareholder wealth is an advantage of NPV investment appraisal…

Q: Which of the following statements is CORRECT?

A: The capital structure simply refers to the make-up of capitalization or long-term capital of a…

Q: Suppose a firm invest in proects that are much riskier than its average investments. Do you think…

A: A firm funds its investments either with shareholders' equity or debt. One of the major criteria…

Q: What is the clientele effect, and how does it affect dividend policy irrelevance

A: Answer: Clientele effect: Clientele effect refers to companies which make customer-based dividend…

Q: What are the best two measures for the profitability of firms that are not publicly traded?

A: Profitability, rate of return, as well as the pre-tax income are all metrics that would be used to…

Q: Why do the clientele effect and the information contenthypotheses imply that investors prefer stable…

A: Clientele effect means the preference of different categories of investors to invest in specific…

Q: book value.”

A: Market value is the value that is determined by the forces that are external to the company such as…

Q: What is meant by informational efficiency, and how does it affect the price of a stock?

A: Stock price fluctuation refers to the variation in the market price of a stock over a period of…

Q: Why does "maximizing firm value" equal to "maximizing stockholders' equity"?

A: Maximization of shareholders wealth means increasing the overall value of the firm, not just its…

Q: The cost of capital is affected by some factors that are under the firm’s control and some that are…

A: The objective of this question is to understand the factors that influence the cost of capital, both…

Q: What is a capital investment and why do companies need to evaluate whether to make the investment or…

A: Capital Investment:-It is an investment that a company made to purchase its fixed assets or…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.