Explain the concept of financial risk (what is it)?
What does it mean if an investment has a NPV of zero?
Explain why all stocks should have a zero NPV in an efficient market.
A firm’s WACC is 10%. Would the company ever consider a capital investment with an expected return of 8%? Explain.
If you have all your money invested in T-Bills earning 2%, then you take some of that money to invest in a high-beta stock, is 2% your required return on that stock?
A firm has excess cash that it temporarily invests in Treasury Bills yielding 3%.
If the company’s WACC is 10%, is this investment producing a negative NPV? What is the NPV?
If Treasury Bills are yielding 3%, could there be any situation where an informed investor would invest in an asset that has an expected return of 0%?
Leverage increases risk of financial distress. So if a company borrows money, shouldn’t the value of the firm go down due to the higher risk?
Is it appropriate for a company to match capital investment projects with the specific sources of capital used to finance them?
If Target acquired Neiman Marcus and used their own WACC to value the deal, what’s the consequence?
According to the EMH, it’s improbable that investors should be able to consistently “beat the market”. Why?
Why do bond prices go down if interest rates go up?
If a business can borrow all the money it needs for a capital investment project at 8% interest, is 8% the appropriate cost of capital for that project?
The cost of capital depends on the risk of the project, not the source of the money. Explain.
What is unsystematic risk and how can it be eliminated?
How does beta differ from standard deviation as a measure of risk?
What does NPV represent?
Explain systematic risk and how to measure it?
Explain what causes financial leverage?
If Boeing’s reward-to-risk ratio exceeds the market risk premium, what are the implications?
How does APR differ from EAR?
What causes stock prices to fluctuate day-to-day?
Explain the concept of financial risk (what is it)?
If interest expense is a cash disbursement, why is it excluded from Operating Cash Flow?
What determines the value of an economic asset?
Is leverage a good thing? Discuss.
Why does the present value of a future cash flow decline as the required return increases?
Since depreciation is a non-cash expense, does it have an effect on NPV and IRR? Explain.
Why would investors demand a return on an investment that has no risk?
Explain why historical information should be useless in predicting the stock market.
If Apple announced record earnings and its stock price didn’t go up in response, how could that be explained and what does it say about the EMH?
The book says that “all stocks in an efficient market are zero NPV investments”. Why should this be true?
Is it ever appropriate for a company to accept a capital investment that provides a NPV of zero? Explain.
If Wal-Mart was considering the acquisition of a generic drug manufacturer, should it use its corporate WACC to value the deal? Explain.
If your financial advisor claims to have beaten the market for ten years straight, what do you think?
If borrowing increases the risk of a company, does its WACC increase with more leverage? Discuss.
Explain what is meant by market efficiency.
Do the NPV and IRR decision rules ever conflict? Discuss.
What’s wrong with Payback as a decision criteria?
If two companies valued the same capital project, should the resulting NPVs be the same? Discuss.
Does the EMH imply pricing perfection?
Do stock market bubbles disprove the EMH?
What is Beta? How is it related to expected return?
A company can’t spend its Net Income. Explain why.
Is it always correct to reject a capital project that has an IRR less than its WACC?
If Google doesn’t pay a dividend, why is its stock worth over $1000 per share?
Why invest in a portfolio of stocks instead of just one?
Explain what’s meant by the term “Time Value of Money”?
A company is buying a warehouse and has arranged a loan to finance it. It calculated this project’s NPV using the loan’s interest rate to discount the cash flows. Discuss.
What does the Security Market Line represent?
Discuss what diversification does and how it works.
Explain why WACC would effect a firm’s stock price.
What effect does borrowing have on a firm’s WACC?
If the Payback Period equals a project’s life, what does that imply about its IRR and NPV?
If NPV and IRR give you conflicting decisions, what do you think?
You are reviewing a capital investment proposal with multiple cash outflows. What are the implications?
If you invested $1000 and three years later you got $1000 back, could the annual arithmetic average return be anything other than zero? What about the mean geometric return? Why?
Explain why a capital investment’s NPV profile may not be downward sloping to the right.?
When discussing a capital investment, what is meant by a “conventional project”?