Finance Tutor Help ASAP. Please answer all questions from a through g Consider t
ID: 2750851 • Letter: F
Question
Finance Tutor Help ASAP. Please answer all questions from a through g
Consider the following claims. Answer them with “True” or “False” and your explanation. No credit will be given if no explanation is shown.
Please provide explanation
a) All firms can issue debts if their asset values are sufficient enough. In particular,
the values of the firms will always increase as they raise more debts since interests on corporate debts are tax-deductible.
b) If the capital market is so efficient that all essential information for the firms’ values is disclosed in the public, then there is no chance for any investor to make a profit.
c) One of the drawback of Net Present Value principle is that one will easily tend to accept the project(s) that have less years of cash flows - if other things being equal.
d) The expected rate of return for a stock when determined by the Capital Asset Pricing Model (CAPM) is the “goal (or target)” of the rate of return for the firm’s equity. Hence, if the stock returns actually reach this rate, it is good enough already.
e) Capital budgeting is to determine the best capital structure for the firm in raising capital from the capital market.
f) To calculate the weighted average cost of capital is to assume that expected rates of return from different sources are evaluated according to relative contributed proportions on entire capitalization without references to where and who contributed the fund.
g) The yield to maturity of the corporate bond is always the expected rate for return for bondholders, regardless of their intended holding horizons of the bonds.
Explanation / Answer
Answer:a) False because of high debts interest burden is also increase and this condition leads to bankcurrupts also.
Answer:b) True because the efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner, Secondly, under the efficient market hypothesis, no single investor is ever able to attain greater profitability than another with the same amount of invested funds.
Answer:c) False Because NPV considers all cash flow and time value of money.
Answer:d) True because it is the maximum return where price is high.
Answer:e) True Because of its techniques and capital budgeting is simply the process of deciding which capital projects to pursue and which to reject.
Answer: F) True
because WACC=Kd*WD+Ke*We+Kp*WP
Answer:g) True because Yield to Maturity (YTM) refers to the expected rate of return a bondholder will receive if they hold a bond all the way until maturity while reinvesting all coupon payments at the bond yield
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