QUESTION 11 Which of the following is not a problem of using the CAPM in the investment appraisal process? O A. The proxy company's equity beta includes financial risk O B. Proxy companies often undertake a portfolio of business activities OC. The CAPM is a single-period model, but investment appraisal is multi-period. O D. The CAPM model relies on a number of assumptions O E. Proxy company information is not publicly available
QUESTION 11 Which of the following is not a problem of using the CAPM in the investment appraisal process? O A. The proxy company's equity beta includes financial risk O B. Proxy companies often undertake a portfolio of business activities OC. The CAPM is a single-period model, but investment appraisal is multi-period. O D. The CAPM model relies on a number of assumptions O E. Proxy company information is not publicly available
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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.
Question
![QUESTION 11
Which of the following is not a problem of using the CAPM in the investment appraisal process?
O A. The proxy company's equity beta includes financial risk
O B. Proxy companies often undertake a portfolio of business activities
OC. The CAPM is a single-period model, but investment appraisal is multi-period.
O D. The CAPM model relies on a number of assumptions
O E. Proxy company information is not publicly available](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F91fe3d23-6091-4d66-a150-4216d1b5c2e4%2F221bda19-4345-4acc-97ec-681063744e40%2F9rvnt9s_processed.png&w=3840&q=75)
Transcribed Image Text:QUESTION 11
Which of the following is not a problem of using the CAPM in the investment appraisal process?
O A. The proxy company's equity beta includes financial risk
O B. Proxy companies often undertake a portfolio of business activities
OC. The CAPM is a single-period model, but investment appraisal is multi-period.
O D. The CAPM model relies on a number of assumptions
O E. Proxy company information is not publicly available
![QUESTION 12
A company has the choice of either buying a machine outright for £200,000 which it will scrap in three years time for nothing,
but which will attract a 100% first year capital allowance: or of leasing the machine for three years for an annual payment of
£60,000 pyable in advance at the start of each year. The company receives tax benefits and the first tax benefit, whether
leasing or borrowing, occurs in year 1. The company can borrow at a pre-tax rate of 10% and corporation tax stands at 30%.
Round up your answer to the néarest £100. Which óf the following is true?
O A. Leasing is beneficial by £78,800
O B. Leasing is beneficial by £22,700
OC. Leasing is beneficial by £17,500
OD. Buying is beneficial by £22,700
O E. Buying is beneficial by £24,600](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F91fe3d23-6091-4d66-a150-4216d1b5c2e4%2F221bda19-4345-4acc-97ec-681063744e40%2Fsp9rx6_processed.png&w=3840&q=75)
Transcribed Image Text:QUESTION 12
A company has the choice of either buying a machine outright for £200,000 which it will scrap in three years time for nothing,
but which will attract a 100% first year capital allowance: or of leasing the machine for three years for an annual payment of
£60,000 pyable in advance at the start of each year. The company receives tax benefits and the first tax benefit, whether
leasing or borrowing, occurs in year 1. The company can borrow at a pre-tax rate of 10% and corporation tax stands at 30%.
Round up your answer to the néarest £100. Which óf the following is true?
O A. Leasing is beneficial by £78,800
O B. Leasing is beneficial by £22,700
OC. Leasing is beneficial by £17,500
OD. Buying is beneficial by £22,700
O E. Buying is beneficial by £24,600
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