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Questions and Answers of
Accounting
Dove Corporation manufactures and sells climate controlled wine cabinets. Its most popular model sells for $3,000 and comes with a basic 90-day warranty/ For am Extra $150 this warranty is extended
Assume that the risk- free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market?What is the required rate of return on a stock that has a beta of
Wade’s outstanding stock consists of 45,000 shares of cumulative 10.00% preferred stock with a $10 par value and also 112,500 shares of common stock with a $1 par value. During its first four
"Suppose the R Son Company had a cost of goods sold of $1,000,000 in 2010 and $1,200,000 in 2011 Inventory 350000 In 2010 and 500,000 in 2011.a) Calculate the inventory turnover for each year.
What is meant by “capacity in chunk” and why that a factor in capacity planning?
Sapling, Inc. is a 95%-owned subsidiary of Fir Enterprises. Fir Enterprises sells Sapling an industrial wood chipper for $10,000 on January 1, 20x8. Fir Enterprises paid $17,000 for the wood chipper
The Payback method is widely used in capital budgeting because is its simple and does a good job of determining the correct accept/reject decision.1. True2. False
Make the year end, 12-31-12, general journal adjustments for Mayberry Mold Company.Company only prepares adjustments and financial statements once a year on 12-31.Here is this information to make
Mr. Ess, the owner of the SS Skimpy and an American citizen, borrows money from MultiBank in London to outfit his ship, giving the bank a maritime lien on the ship. Mr. Ess sells the ship to Mr. Tee,
You deposited $3,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest
Provide a comprehensive answer using your reading, knowledge and experience for this Discussion Question. Just War Theory, beginning with Cicero, states that “war should be a last resort,” only
Who reads financial statements? List at least three different categories of people. For each category, provide an example of the type of information they might be interested in and discuss why.
What are the benefits of issuing and investing in Eurobonds?
Why are most corporate Eurobond issuer’s large, multinational corporations?
In a comparable transactions analysis, what additional considerations might an investment banker factor in when valuing an emerging market company?
Suppose you are a wealth advisor and a client has asked for your recommendation on which of the BRIC countries poses the least risk and most opportunity for investment growth. Briefly compare the
After an initial hedge is in place, what do hedge fund investors in convertible bonds do with shares of the underlying stock when the stock price increases or decreases?
True or false: Convertible arbitrage hedge funds invest in convertible bonds because the fund managers have a bullish view on the company’s stock. Explain your answer.
Discuss whether you feel the SEC’s temporary ban on short-selling financial stocks in 2008 during the financial crisis unfairly punished convertible arbitrage funds.
What are the core differences between Investment Banking (IB) and Sales and trading career paths?
Describe what a Chinese Wall is and which U.S. regulator would be concerned with issues involving the wall.
What advancement in the mortgage market set the foundation for the subprime crisis and why?
Describe a Credit Default Swap (CDS). What are regulators trying to do to mitigate risk in the CDS market?
Under what scenarios will the SIV market arbitrage model fail to work?
Why were U.S. investment banks allowed to operate at higher leverage ratios compared to commercial banks?
How does the phrase “perception is reality” apply to Bear Stearns?
How do Asian and petrodollar investors fit into the genesis of the financial crisis during 2007–2008? Structure your answer around the themes of easy credit, excess liquidity and cheap debt.
Discuss how CDS can be used for hedging and speculative purposes.
Unlike most mutual funds, why are hedge funds able to charge performance fees on top of management fees?
Describe side pockets.
Where does the name hedge fund come from?
Describe a margin loan.
Why is it especially important to adjust hedge fund returns data for survivorship bias in the aftermath of the 2007–2008 financial crises?
Looking at the comparison of hedge fund returns versus the S&P 500 index’s returns in Exhibit 11.12, even if hedge funds are not always successful at generating absolute returns, what benefit do
What are some positive consequences resulting from the proliferation of hedge funds?
Discuss the dangers of asset/liability mismatch. What are some strategies that hedge funds employ to mitigate this issue?
Why do you think there is a fund of fund market for hedge funds, but not for mutual funds?
What are the three key benefits touted by fund of funds? Do you think that fund of funds achieved these benefits during 2008? Why or why not?
Why did convertible arbitrage strategies perform so poorly in 2008?
When is merger arbitrage an attractive investment strategy? What are the downside risks of this strategy?
Why do you think distressed/restructuring hedge fund strategies did so poorly in 2008 (down 25% for the year)?
Generally speaking, in which two hedge fund strategies would you expect to see more volatile returns?
Merger arbitrage is considered a market-neutral strategy. Under what conditions would this no longer be the case?
What are some ways to neutralize market risk in an equity long/short transaction?
Before the elimination of the broker vote, which type of company, would have made an easier target for an activist investor and why: a company with mostly large institutional shareholders, or one
In the environment immediately following the credit crisis of 2007–2008, what are factors that encouraged and hampered the activities of activists?
What’s the benefit of staggering the election of board of directors?
Cumulative voting is the practice of allowing shareholders to cast all of their votes for a single nominee for the board of directors when the company has multiple openings on its board. Does this
Describe what is meant by a “13D letter.”
What timing mismatch issue exists for activist hedge fund investment strategy?
Activist funds need to devote more time and resources to investments compared to most other fund strategies. What added risk does this produce for activist funds?
Describe a total return swap (sometimes called an equity swap) and the benefits of this strategy for a hedge fund.
In the legal battle between CSX, TCI, and 3G, the SEC and the Federal Court judge that presided over the lawsuit held differing views of the case. Which had a more rules-based approach, and which had
Which two core hedge fund activities can either create incremental risk or act as a risk mitigator?
Explain the importance of hedge funds to investment banks, including revenue, types of business, and which division is most relevant. In addition, with which investment banking areas do hedge funds
What are two of the key checks and balances in place to help manage the incremental risks associated with the hedge fund industry?
What are some of the major market events in the last three decades that have raised the issue of systemic risk?
Based on the current regulatory environment, even if a U.S. hedge fund is exempt from registration under the 1940 Act, what type of regulations does it need to adhere to?
Under current U.S. laws, when does a fund (and its advisors) need to register with the SEC?
Describe the key characteristics and benefits of hedge funds.
The performance disparity between established managers and new managers was especially sizable in 2008. Describe what may have attributed to this.
Based on the returns of the various strategies in Exhibits 15.3 and 15.4, which strategy seems to be most successful at achieving absolute returns?
Assuming the same size and profitability, which fund would you expect to have more in tax liabilities: Active Trading or Activist Investing?
Classifying some of the largest hedge funds as Tier 1 financial holding companies would subject these funds to requirements regarding capital, liquidity, and risk management. The rationale for this
What is the benefit of a hedge fund like Citadel expanding into a hedge fund services business such as market making and fund administration?
Are private equity firms financial buyers or strategic buyers and why? Which type of buyer should generally be able to pay more in an M&A auction and why? Why might that not always be the case?
What type of management is generally needed to run a portfolio company owned by a private equity firm? Describe the characteristics of these managers.
What are the five principal financing sources for an LBO transaction?
How is the commitment and redemption of capital different in private equity compared to hedge funds?
Why would a proposal to eliminate the tax benefits of carried interest (performance fees) have a greater impact on the private equity industry?
Why are general partners typically only allowed to make investments in new companies during the first 5 years of a fund’s life?
What type of concessions were private equity firms able to get from investment banks during 2006 and the first half of 2007 that normally would not be possible?
When a private equity fund teams up with management for a potential buyout, why would they want to avoid having early disclosure of the transaction?
Why do you think more companies do not recapitalize their balance sheets by adding more debt in order to replicate the returns achieved by private equity fund portfolio companies? Do investment banks
Since private equity firms seek to minimize their equity contribution in a deal in order to maximize returns, the amount of debt used to finance transactions should (wishing away financial risk) be
What does an LBO analysis include, what does it solve for, and what question is answered by the analysis?
What are the three ways to create returns through an LBO transaction?
What is the formula for determining cash flow available for debt service?
What are the key credit statistics in an LBO financing?
What are some measurable benefits from private equity ownership of corporations?
What were the World Economic Forum’s principal conclusions regarding private equity firms?
In hindsight, what were some of the errors committed by the buyout group for TXU?
What were the principal risks faced by the PE consortium when they made their bid to acquire HCA?
What is the impact of highly leveraged deals on the portfolio companies’ ability to compete in their industries?
Describe the three main areas where private equity investments may bring value to corporations.
Which of the three private equity value propositions for corporations has become most problematic in recent years?
What is a benefit of having a financial buyer versus a strategic buyer in an M&A transaction??
Why did financial sponsor participation in the global M&A market drop from 2007 to 2008? What percentage of the market did financial sponsor activity represent during these 2 years?
What is a difference between the organizational structure of private equity funds and hedge funds?
What are similarities and differences in the compensation structure for private equity funds and hedge funds?
In the United States, which provisions have private equity funds historically relied on to avoid registration with the SEC?
Why is there a secondary market for private equity funds but not hedge funds?
Why do you think U.S. corporate pension funds projected annual returns for private equity to be higher than that of hedge funds for the 2009–2013 period?
Why were LBO funds so successful from 2002 through July 2007? Describe what has happened since then.
What is a possible negative consequence of investing during private equity boom cycles?
From the perspective of existing Limited Partners (LPs) in a private equity fund, what are the benefits and considerations of annex funds?
Why have larger private equity firms been successful in diversifying into the advisory business traditionally dominated by the major investment banks?
Annex funds attempt to address which of the principal risks outlined in Blackstone’s IPO prospectus (Exhibit 20.2)?
Discuss multiple expansions in the context of value creation for private equity investments made following a financial crisis.
What might contribute to non-U.S.-based PE firms outperforming U.S.-based PE firms on average?
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