Who gains and who loses from the following maneuvers? a. Circular scrapes up $5 in cash and pays a cash dividend. b. Circular halts operations, sells its fixed assets, and converts net working capital into $20 cash. Unfortunately the fixed assets fetch only $6 on the secondhand market. The $26 cash is invested in Treasury bills. c. Circular encounters an acceptable investment opportunity, NPV = 0, requiring an invest- ment of $10. The firm borrows to finance the project. The new debt has the same security, seniority, etc., as the old.

Who gains and who loses from the following maneuvers? a. Circular scrapes up $5 in cash and pays a cash dividend. b. Circular halts operations, sells its fixed assets, and converts net working capital into $20 cash. Unfortunately the fixed assets fetch only $6 on the secondhand market. The $26 cash is invested in Treasury bills. c. Circular encounters an acceptable investment opportunity, NPV = 0, requiring an invest- ment of $10. The firm borrows to finance the project. The new debt has the same security, seniority, etc., as the old.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following statements regarding the professional arbitrage is FALSE? a) The arbitrageurs may choose to hold cash even when they know the asset prices are temporarily below their fair values. b) The arbitrageurs may lose money sometimes. c) The arbitrageurs conduct fire sales sometimes because the asset prices are too high. d) The arbitrageurs may make the markets less efficient sometimes.
The company. New Wifi, was in an unusual situation of being worth more dead than alive. What economic principle was violated when the owner Cabie Garfield tried to get control of the fim, break it up sell the assets and make a profit? Select one Oa Externalties Ob. Diminishing marginal retum O The law of one price Od Non-positive marginal utility of wealth O e. Diminishing marginal utility of wealth
To solve for the FV of the cash flow stream with a calculator that doesn’t havethe NFV key, do the following:Enter N = 6, I/YR = 8, PV = -923.98, and PMT = 0.Solve for FV = $1,466.24. how can I apply this on Excel for some reason it doesn't allow me or give me answer
Which of the following statements is (are) FALSE? Select one or more alternatives: When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalisation. If the IRR of a project is equal to the cost of capital, the NPV will be zero. It is reasonable to assume that a business has a terminal growth rate higher than the long-term growth rate of the economy. The terminal growth rate is the growth rate used to estimate the terminal value of a business. Interest expenses from borrowing should be subtracted from EBIT to estimate free cash flow to firm.
Carolina Company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and are not repeatable. WACC: 7.75% Year 0 1 2 3 4 CFS −$1,050 $675 $650 CFL −$1,050 $360 $360 $360 $360 What is the underlying cause of ranking conflicts between NPV and IRR?
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15. Since a financial manager prefers to receive cash flows as fast as possible,____.A. a longer depreciable life is preferred to a shorter oneB. a shorter depreciable life is preferred to a longer oneC. the manager is not concerned with depreciable life, because depreciation is a noncash expenseD. the manager is not concerned with depreciable life, because once depreciation is a sunk cost.
When a firm has less current assets to pay off its current liabilities, it has ______ liquidity risk. Such a firm is likely to have _____ returns. Question 32 options: 1) lower, higher 2) lower, lower 3) higher, higher 4) higher, lower
You recently found out that when the market is in recession, ALL assets seem to suffer from some degree of liquidity problems as there are less trades than usual, and thus it is hard to sell an asset without losing some of its fair value. So, you concluded that at least some portion of liquidity risk must be systematic in nature and therefore it must be compensated by the market. To verify this, you cut the market portfolio in half by the illiquidity measure developed by Amihud (2002) [So that you have one relatively liquid portfolio and one relatively illiquid portfolio. Assume that this measure is reliable.] and calculated the market liquidity risk premium as follows: Market liquidity risk premium = Expected return on the illiquid portfolio - Expected return on the liquid portfolio = [E(RIL) - E(RL)] Then you formed 5 portfolios from the entire market based on liquidity (Amihud measure) and estimate the factor loading β (called liquidity beta) of each portfolio using [RIL - RL] as…
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Present value of an amount lesser than its value that is to be received (paid) in the future because of what reason? a.Deflation causes investors to lose purchasing power when their pesos are invested for greater than one year. b.Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. c.Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. d.Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. e.None of the choices is a correct answer.

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