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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- Question on attached image. Please answer asap. thanksWhich 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).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.
- Hh2.D3)What is WACC (select all that are true)? Group of answer choices Rd (1-Tc) * D/V + Re * E/V Weighted Average Cost of Capital For a firm overall, it is based on the riskiness of the firm's assets While it is generally estimated by looking at the right-hand-side of the balance sheet, it is largely driven by the left-hand-side (i.e., assets) It is the amount that equity holders demand for an investment in a firm It is the amount that debt holders demand for a loan made to the firm
- What options does a firm have to spend its free cash flow (after it has satisfied all interest obligations)? (Select the best choice below.) A. Use it to repurchase shares. B. Pay it out as dividends. C. Use it to make investments. D. All of the above.Q1. A Corporation is trying to determine its optimal capital structure using the following table.The company estimates that the risk-free rate is 5%, the market risk premium is 6%, and its tax rate is 40%. Itestimates that if it had no debt, its beta, would be 1.2. Based on the information, what is the firm’s optimal capitalstructure, and what would the WACC be at the optimal capital structure?What are the implications of these calculations? In other words, based on each of the calculations, and being mindful of the need to balance portfolio risk with return, would you recommend that the company pursue the investment? Why or why not? Be sure to substantiate claims.
- a. Given the following information, calculate the expected value for Firm C’s EPS. Datafor Firms A and B are as follows: E(EPSA) =$5.10, σA =$3.61, E(EPSB) =$4.20, and σB = $2.96. b. You are given that σC = $4.11. Discuss the relative riskiness of the three firms’ earnings.Your colleague collects the information in Table 1. Included are D/E ratios and estimated equity betas for firms similar to the take-over tarket, the target firm's Debt-to-Firm Value ratio, the target firm's tax rate, and the average YTM and coupon payments for their outstanding debt. Using this data, find the appropriate WACC for this investment decision. Hint: Firm Value is Debt + Equity. Therefore, D/(D+E) = 0.2. Use this to solve for D/E, the target firm's leverage ratio. D/E Equity Beta Target D/V 20% Competitor 1 29.90% 2.68 Tax Rate 40% Competitor 2 -7.60% 1.94 Average YTM 6% Competitor 3 32.20% 1.92 Average Coupon 6.50% Competitor 4 49.70% 1.12 Equity Market Risk Premium 5% Competitor 5 21.70% 0.97 Treasury Note 4.93% Competitor 6 34.30% 2.13 WACC Competitor 7 28.50% 1.27 Competitor 8 -6.70% 1.01 Competitor 9 42.60% 0.98A firm pays out all its earnings in the form of dividends. The stock price of the firm after it commits to a new project is given by Blank______. (EPS denotes earnings per share, and NPVGO denotes the net present value of growth opportunities.) Multiple choice question. (EPS / r) − NPVGO (EPS / r) + NPVGO (EPS × r) + NPVGO (EPS × r) − NPVGO
