Which of the following statements is FALSE? a) The Capital Asset Pricing Model is the most important method for estimating the cost of capital that is used in practice. b) Because the risk that determines expected returns is unsystematic risk, which is measured by beta, the cost of capital for an investment is the expected return available on securities with the same beta. c) A common assumption is that a project has the same risk as the firm. d) To determine a project's cost of capital we need to estimate its beta.

Answer:- Cost of capital:- The minimum rate of return or profit that a business must achieve before…

Answered: Which of the following statements is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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why is knowledge of the money market important for carrying out value maximizing working capital short term management?why are opportunity cost of not taking account the risk return trade off of the various short term instruments?
5. Many factors influence capital structure decisions; and as we will see, determining the optimal capital structure is not an exact science. Therefore, even firms in the same industry often have dramatically different capital structures. Define the optimal capital structure and differentiate it from the target capital structure. Name four factors that influence a firm's target capital structure. In what sense does setting the target capital structure involve a trade-off between risk and return? Why might market conditions cause a firm's actual capital structure to vary from its target level?
According to the Capital Asset Pricing Model (CAPM), an asset with negative beta: a. Cannot exist b. Is expected to earn a negative return c. Should be short sold d. Will not be included in the market portfolio e. None of the above
In understanding capital structure, one approach, which I adopt, is to demonstrate, under certain assumptions, that financing decisions are irrelevant – in that they have no impact on firm value. Then, we show how relaxing these assumptions impacts optimal financing choices. Group of answer choices True False
You have learnt three approaches that can be used in determining the discount rate in equity valuation: factor models, characteristic models and the implied cost of capital. 1. Describe the detail procedures in implementing the Capital Asset PricingModel (CAPM) in practice.
What are the two types of risk according to the Capital Asset Pricing Model? Which of the two types of risk cannot be reduced and why? How can the risk specifically in a Real Estate Investment be reduced? Make use of examples а.
Why do maximizing EPS and maximizing value not necessarily lead to the same conclusion about the optimal capital structure?
List situations when using the FCFE model to value the equity of a project would not be ok
IN Capital Asset Pricing Model a) how is it used in practice b) how important is this model c) explain its weakness.
2. a) Give the arguments for active portfolio management. b)What are the reasons which cause investors managing their portfolios passively to make changes their portfolios? c)What are the major differences between active and passive portfolio management? d)Explain the difference between static and tactic asset allocation
Q.No.3. Derive the Capital Asset Pricing Model (CAMP) and also discuss the assumptions that are necessary in the development of the CAPM. Explain how CAMP related to portfolio theory. Discuss managerial applications of CAPM.
Which statement is false regarding the Capital Asset Pricing Model? A. The beta coefficient of a stock is constant. B. The risk free rate is usually based on the treasury bill yield. C. Market risk premium is the difference between market return and the risk free rate. D. The cost of retained earnings is equal to the cost of new shares issued.

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