Question
Applying the Efficient Market Hypothesis (EMH) to capital budgeting, which of the following statements is correct ? a. In an efficient market the NPV for
Applying the Efficient Market Hypothesis (EMH) to capital budgeting, which of the following statements is correct?
a. In an efficient market the NPV for projects should on average be positive.
b. Existing large firms can be considered evidence that the EMH is true.
c. Existing large firms may exist because they may not have played the game long enough meaning they may still go insolvent.
d. Firms can be considered to be a collection of projects; and existing firms a collection of negative NPV projects.
e. If firms produce new information or technology, this could never be a reason for a firm to produce a NPV.
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If a firms equity is considered a call option, then
a. The firm can never go bankrupt.
b. Volatility will make a firms equity more valuable.
c. A firm can only have positive outcomes.
d. a firm can never issue debt.
e. a firms value will only increase with more debt.
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