In a typical venture capital portfolio 1. Some firms will be liquidated 2. Only a few firms will be responsible for the bulk of returns 3. Most firms will be liquidated, acquired by another firm or allowed to operate privately 4. All firms must have a high expected return Which of the statements are correct? Select one: O a. 2, 3 & 4 O b. 2&4 Oc. 1, 2, 3, & 4 O d. 2
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- What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1? (6 marks)b. Differentiate between systematic and unsystematic risks. (4 marks)c. What is equity capital? Write two advantages and two disadvantages to the firm of raisingcapital this way. (5 marks)b) What is meant by capital structure and how is it different from financial structure?(5 mark6. An investor decides to invest in shares in two companies, rather than in just one. The expected returns of each company are RA and RB (where RB > RA). Which statement best describes RP, the expected return from the portfolio? A) RB < RP < RA B) RA < RP < RB C) RP < RA < RB D) RP = (Ra+Rb)/2V4. Which of the following statements is correct? Connection to northeastern.instructure.com was lost. Please make sure you're connected to the Internet before continuing. In perfect capital market, if an investor wants to have high risk and high return, she should only invest in firms with high leverage. In perfect capital market, leverage recap helps a firm to adjust its capital structure so as to increase firm value. In perfect capital market, share repurchase would increase stock value. O Leverage recap does not change firm value in a perfect capital market.
- You are the CFO of a profitable firm that is financially constrained. The stock market is currently going through a boom phase (assume this is a bubble). From what you have learned in this course, you know that the rational decision would be to issue new shares and use this income to pursue positive NPV projects. Before you make this decision, what is the most important variable that you would examine Assume you have information on all these variables. Select one: O a. Market Q O b. Fundamental Q O c. Elasticity of price demand for common shares O d. Cash SavingsQuestion on attached image. Please answer asap. thanksQ4. (a) "For most investment decisions that a firm faces, NPV is either a superior decision criterion or at least it is considered a good technique to decide for investment." What are your considerations? Do you think that other techniques can also provide better results while taking investment decision? If Yes, please elaborate. Q4. (b) J & K Ltd. Provided the following information related to the book values of debentures and equity: Equity Share Capital 40,00,000 12% Preference shares 10,00,000 10% Debentures 30,00,000 The equity share of the company sells for Rs. 20 and company has taken decision of providing dividend of Rs 2 per equity share. The dividend will further grow at 5% forever. Tax rate is 35%. You are required to compute weighted average cost of capital (WACC) based on the given information. Company is planning to raise Rs 20,00,000 by issuing 12 % debentures, but then equity share price will fall to Rs. 16 per share and company has to increase dividend to Rs. 2.40,…
- 6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions Recession P Returns on.DBB Returns on DVI 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let's say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?Which of the following statements is most correct? (Hint: Work Problem 4-16 before answering 4-17, and consider the solution setup for 4-16, as you think about 4-17.) a. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will raise the firm' expected return on common equity (ROE). b. The higher its tax rate, the lower a firm's BEP ratio will be, other things held constant. c. The higher the interest rate on its debt, the lower a firm's BEP ratio will be, other things held constant. d. The higher its debt ratio, the lower a firm's BEP ratio will be, other things held constant. e. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will decrease the firm's expected return on common equity (ROE).which one is correct please confirm? QUESTION 27 All of the following methods may be used to determine the cost of equity capital (k e) for a non-dividend-paying stock EXCEPT ____. a. the risk premium on debt approach b. comparing with similar dividend-paying stocks in the industry c. the Capital Asset Pricing Model approach d. the simulation with growth expectations approach
- a. What is the meant beta (β)? How would you interpret if β=1, β>1 and β<1? b. Differentiate between systematic and unsystematic risks. c. What is equity capital? Write two advantages and two disadvantages to the firm of raising capital this way. d) What is meant by capital structure and how is it different from financial structure?6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions Recession P Returns on DBB Returns on DVI 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let's say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?QUESTION 1 (a) Elaborate on business risk and financial risk. Suppose Firm A has greater businessrisk than Firm B. Therefore, Firm A should have a higher cost of equity capital.Justify.(b) Gigi considered constructing a portfolio for herself, discuss which school of thoughtwould be practical for her portfolio, the Traditional or Modern Portfolio Theory.(c) Dividends are important, but at the same time, dividend policy is irrelevant. Justify.
