Question
10. Based on the empirical evidence pertaining to efficient markets, which of the following is most likely to earn abnormal returns? A technical analyst. A
10. Based on the empirical evidence pertaining to efficient markets, which of the following is most likely to earn abnormal returns?
A technical analyst.
A securities analyst.
A company insider.
A passive investor using index funds.
Closed End investment companies.
Open End investment companies or mutual funds.
11. Recall the Value of the Firm0 = FCFt / [1 + WACC]t with t from 1 to . The owners of Martial Arts Inc. [the owner/operator of a chain of karate dojos] are considering selling their business to a private equity firm. Next years end-of-year free cash flow (FCF1) is expected to be $1.45 million, lower than recent years due to a major expansion. Free Cash Flow is expected to grow at the rates shown in the table below thereafter. Beginning in year 7 a constant growth rate of 4% is forecast. The company's WACC is 6.50%. What is the estimated intrinsic value of the firm in millions of dollars? [Round to 2 decimals, for example $23.35]
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
Growth Rates | 30.00% | 24.00% | 18.00% | 15.00% | 10.00% | 4.00% |
a. $59.37
b. $69.35
c. $71.28
d. $111.28
e. $104.85
12. Momentum has been reported in stock returns of many world stock markets. Existence of momentum:
leads to abnormal return if weak form efficient market is accurate.
contradicts weak form of EMH.
contradicts semi-strong form of EMH.
leads to normal return if weak form efficient market is not accurate.
All of the above answers are correct.
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