Exercises:
Cap. 6 -1, 2, 3
Cap. 8 - 1, 2, 3 , 6, 7, 8, 11, 13
Cap. 15 - 1, 4, 11, 12
Answers with all details
REVIEW QUESTIONS 6-1 What is the real rate of interest? Differentiate it from the nominal rate of interest for the risk-free asset, a 3-month U.S. Treasury bill. 6-2 What is the term structure of interest rates, and how is it related to the yield curve? 6--3 For a given class of similar-risk securities, what does each of the follow- ing yield curves reflect about interest rates: (a) downward sloping, (b) upward sloping, and (c) flat? What is the normal shape of the yield curve? REVIEW QUESTIONS 9-13 What is the weighted average cost of capital (WACC), and how is it calculated? 9-14 What is the relationship between the firm's target capital structure and the weighted average cost of capital (WACC)? f umat muights to calculate the REVIEW QUESTION 10-1 What is the financial manager's goal in selecting investment projects for the firm? Define the capital budgeting process, and explain how it helps managers achieve their goal. REVIEW QUESTIONS 15-1 Why is working capital management one of the most important and time-consuming activities of the financial manager? What is net work- ing capital? 15-2 What is the relationship between the predictability of a firm's cash in- flows and its required level of net working capital? How are net work- ing capital, liquidity, and risk of insolvency related? i. i le - - REVIEW QUESTIONS 10-4 How is the net present value (NPV) calculated for a project with a conventional cash flow pattern? 10-5 What are the acceptance criteria for NPV? How are they related to the firm's market value? 10-6 Explain the similarities and differences between NPV, PI, and EVA. REVIEW QUESTIONS 10-8 What is the internal rate of return (IRR) on an investment? How is it! determined? 10-9 What are the acceptance criteria for IRR? How are they related to the firm's market value? REVIEW QUESTION 10-1 What is the financial manager's goal in selecting investment projects for the firm? Define the capital budgeting process, and explain how it helps managers achieve their goal. 8-6 What relationship exists between the size of the standard deviation and the degree of asset risk? 8-7 What does the coefficient of variation reveal about an investment's risk that the standard deviation does not? REVIEW QUESTIONS 8-11 How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable risk the only relevant risk? 8-12 What risk does beta measure? How can you find the beta of a portfolio? 8-13 Explain the meaning of each variable in the capital asset pricing model (CAPM) equation. What is the security market line (SML)? 14 What impact would the following changes have an the ceciiter marlzet REVIEW QUESTIONS 9-1 What is the cost of capital? 9-2 What role does the cost of capital play in the firm's long-term invest ment decisions? How does it relate to the firm's ability to maximize shareholder wealth? 9-3 What does the firm's capital structure represent? 9-4 What are the typical sources of long-term capital available to the firm? REVIEW QUESTIONS 10-2 What is the payback period? How is it calculated? 10-3 What weaknesses are commonly associated with the use of the payback period to evaluate a proposed investment
