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1-4 in True false 1-3 in short answer MBAD 6152 Part 1. True or False Questions (5 Points Each) Instruction: Evaluate the statement in each
1-4 in True false 1-3 in short answer MBAD 6152 Part 1. True or False Questions (5 Points Each) Instruction: Evaluate the statement in each question. If a statement is true, mark True." . If a statement is false, mark "False," and explain why it is false, 1. A short position in a crude oil futures contract is a right to purchase crude oil. 2. Diversification is most effective when security returns are perfectly negatively corre- lated. 3. The net present value (NPV) method assumes that cash flows will be reinvested at the internal rate of return (IRR), while the modified IRR (MIRR) method assumes reinvestment at the weighted average cost of capital (WACC). 4. According to Modigliani-Miller (MM) with corporate taxes, when there is no bankruptcy, a firm can increase it value by reducing debt. Part 2. Short-answer Questions (5 Points Each) Instruction: Answer each of the following questions briefly, specifically, and accurately. 1. Is default risk premium likely to be pro-cyclical (ie, increasing during economie ex- pansion) or counter cyclical (ie, increasing during economic recession)? Why? 2. What are flotation costs? Why do they matter in cost of capital estimation? 3. What are the problems of the IRR methody Does MIRR fix, or fail to fix, those W P otv 21
1-4 in True false
1-3 in short answer
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