Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 12.4, Problem 12.7RQ
Explain why a firm whose stock is actively traded in the securities markets need not concern itself with diversification. Despite this reason, how is the risk of capital budgeting projects frequently measured? Why?
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Chapter 12 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 12.1 - Are most mutually exclusive capital budgeting...Ch. 12.2 - Prob. 12.2RQCh. 12.2 - Describe how each of the following behavioral...Ch. 12.3 - Briefly explain how the following items affect the...Ch. 12.4 - Describe the basic procedures involved in using...Ch. 12.4 - Explain why a firm whose stock is actively traded...Ch. 12.4 - Prob. 12.8RQCh. 12.5 - Explain why a mere comparison of the NPVs of...Ch. 12.5 - What are real options? What are some major types...Ch. 12.5 - What is the difference between the strategic NPV...
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- What are the weaknesses of capital market research?arrow_forwardWhich 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.arrow_forwardwhy 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?arrow_forward
- Which of the following is not a determinant of investment? a) The efficiency of capital equipment b) The level of consumer demand c) Interest rates d) The willingness of investors to buy new share issuesarrow_forwardExplain the concept of efficient markets. Are the equity capital markets inefficient?arrow_forwardWhich of the following statement are true? Direct transfer of capital involves the aid of investment banks and intermediaries None of the statements are correct Interest rates are likely to decrease when there is an expected increase in inflation Interest rates are likely to grow when companies have declining productive opportunitiesarrow_forward
- Capital budgeting can be affected by factors such as exchange rate risk, political risk, transfer pricing, and strategic risk. Select a mid- or large-sized business organization and explain how each of these factors can affect its capital budgeting. Which factor poses the greatest threat to your selected organization and why? What measures can stakeholders take to reduce adverse impacts of these factors?arrow_forward“The stand-alone risk of an individual corporate project may be quite high, but viewed in the context of its effect on stockholders’ risk, the project’s true risk may be much lower." How does the correlation between returns on a project and returns on the firm’s other assets affect the project’s risk?arrow_forwardThe pecking order theory of capital structure suggests that managers will choose to utilise retained earnings before issuing additional debt when financing new projects. Does that imply anything about the flotation costs of issuing new securities?arrow_forward
- "Address the limitations of traditional methods such as CAPM (Capital Asset Pricing Model) andDiscounted Cash Flow Analysis in valuing a company's stock price in non - stationary marketconditions. Particularly, discuss the consistency of the beta coefficient in determining the cost ofcapital and the selection of the risk - free rate. Also, evaluate how these traditional models can orcannot integrate non-financial factors (e. g., company management, brand value, industry trends).Lastly, discuss the alternative models used in stock valuation and the advantages and disadvantagesof these models compared to traditional methods."arrow_forwardPlease explain whether a change in the company's capital structure is likely to reduce its overall WACC, and how would this be achieved?arrow_forward1. Why can’t diversification reduce systematic risk? 2. Why are sunk costs excluded when conducting a capital budgeting analysis?arrow_forward
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