1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Colt1911 [192]
2 years ago
7

Weatherall Enterprises has no debt or preferred stock¾it is an all-equity firm¾and has a beta of 2.0. The chief financial office

r is evaluating a project with an expected return of 14%, before any risk adjustment. The risk-free rate is 5%, and the market risk premium is 4%. The project being evaluated is riskier than an average project, in terms of both its beta risk and its total risk. Which of the following statements is CORRECT?
A.Riskier-than-average projects should have their expected returns increased to reflect their higher risk. Clearly, this would make the project acceptable regardless of the amount of the adjustment.
B.Capital budgeting projects should be evaluated solely on the basis of their total risk. Thus, insufficient information has been provided to make the accept/reject decision.
C.The accept/reject decision depends on the firm's risk-adjustment policy. If Weatherall's policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project.
D.The project should definitely be accepted because its expected return (before any risk adjustments) is greater than its required return.
E.The project should definitely be rejected because its expected return (before risk adjustment) is less than its required retu
Business
1 answer:
Helen [10]2 years ago
3 0

Answer:

The accept/reject decision depends on the firm's risk-adjustment policy. If Weatherall's policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project - option C

Explanation:

Once the said project is riskier, the accept/ reject criterion will be considered based on risk adjusted discount rate which would be higher than company’s cost of capital by the amount of risk premium. Here the risk premium is 3%.

Thus, the decision to accept/reject depends on the risk-adjustment policy of the firm. If Weatherall's policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project - option C is the best answer.

You might be interested in
At the beginning of the year, Poplock began a calendar-year dog boarding business called Griff's Palace. Poplock bought and plac
valina [46]

Answer: See attachment

Explanation:

a. What is Poplock’s year 1 depreciation expense for each asset?

See attachment. Note that the depreciation for the assets were calculated as the original basis × the rate. e.g for Computer equipment, the Depreciation was, the original basis of $5000 × the rate of 20% which equals $1,000.

b. What is Poplock’s year 2 depreciation expense for each asset?

Check attachment.

Depreciation for computer = $1600

Depreciation for day grooming furniture = $1714

Depreciation for popup truck = $3200

Depreciation for commercial building = $6923

6 0
3 years ago
Prime Corporation liquidates its ​85% owned subsidiary Bass Corporation under the provisions of Secs. 332 and 337. Bass Corporat
aliya0001 [1]

Answer:

$20000 gain for John Corporation and $10000 loss for Bass Corporation.

Explanation:

John Corporation gain(loss) = FMV of property - Liability assumed - Stock basis

                                               = 55000-10000-25000

                                               = 20000

Bass Corporation gain/loss = 55000-65000

                                              = - 10000

Therefore,  $20000 gain for John Corporation and $10000 loss for Bass Corporation.

5 0
3 years ago
1. Identify and describe two incremental cash flows from a proposed project such as expanding a product line or launching a new
Mazyrski [523]

Answer:

Explanation:

1. Incremental cash flow is the potential increase or decrease in cash flow from an investment this could be positive or negative.

In this case in expanding a product line or launching a new project incremental cash flow could be.

a. Positive: this is the increase in cash flow due to the product launch and expansion.

b. Negative: this is the decrease in cash flow due to the product launch and expansion

2. a. Payback:

profit gotten from an initial investment equal to what was initially invested

b. Net Present Value(NPV)

This is the difference between present value of income and present value of expenditure over a period of time.

c. Internal Rate of Return(IRR)

Measure the rates of returns for an investment excluding external factors such as risk free rates, inflation e.t.c

d. Profitability Index Method (PIM)

this is the  lowest acceptable measures of the rates of returns for an investment excluding external factors such as risk free rates,inflation e.t.c

6 0
3 years ago
On January 1, Year 1, the Mahoney Company borrowed $164,000 cash from Sun Bank by issuing a five-year 8% term note. The principa
Georgia [21]

Answer:

Principal payment =  $27,505.00  

Explanation:

<em>Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.</em>

The principal repayment in year 1 = Annual payment - Interest payment in year 1

<em>Interest payment in year = Interest rate × Principal Amount</em>

                                          =8% × 164,000

                                         =  $13,120.00  

Principal payment = $40,635 - 13,120 =  $27,505.00  

Principal payment =  $27,505.00  

8 0
3 years ago
Encouraging buyer feedback and focusing on creating value for the buyer are both key requirements for an effective _____. Group
german

Answer:

<u>Sales Dialogue.</u>

Explanation:

Feedback is an important strategic tool for the sales area.

Encouraging the buyer to provide feedback is an effective sales dialogue strategy, which focuses on creating value for the buyer, as creating value for a customer is related to the customer's ability to exercise his opinion about the product or the purchasing process, in addition to feeling valued and improving the perception of the company, which values ​​the feedback of its customers.

In addition to creating value, feedback is a tool for correcting problems and processes resulting from a service or a product and service, which enables a company to correct possible errors found and improve the positive points observed in the analyzed feedbacks.

7 0
3 years ago
Other questions:
  • Problem 2-16 Balance Sheet (LG2-1) Glen’s Tobacco Shop has total assets of $96.4 million. Fifty percent of these assets are fina
    10·1 answer
  • Which of the following documents would you use to create your cash flow statement?
    8·1 answer
  • Lucas is in first grade and works hard to print his alphabet letters on the lines on his notebook paper. in which direction is t
    6·1 answer
  • Eastline Corporation had 13,500 shares of $5 par value common stock outstanding when the board of directors declared a stock div
    15·1 answer
  • Imagine that a researcher wants to test the hypothesis that getting married increases happiness. he finds 100 people who are mar
    9·2 answers
  • What would happen if three more restaurants opened in a small town where only four restaurants were open for business originally
    11·1 answer
  • Isabella is on temporary layoff from her factory job. If Isabella participated in the BLS survey she will be classified as?
    7·2 answers
  • 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses
    6·1 answer
  • Career choice, getting/keeping a job, career changes, career advancement skills are examples of
    12·1 answer
  • Webster Corporation's monthly projected general and administrative expenses include $4,500 administrative salaries, $1,900 of ot
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!