BUSI 320 Read & Interact Block, Hirt, & Danielsen Chapter 13 solutions complete answers

BUSI 320 Read & Interact Block, Hirt, & Danielsen Chapter 13 solutions complete answers

 

A firm should only select those investments that provide a risk-return trade-off consistent with its goals because undesirable risks can result in _____.

 

The portfolio effect is concerned with the manner in which various investments impact the overall ______ of the firm.

 

The longer the time horizon, the less _____ enters the forecast.

 

If the firm considers a riskier investment, v = .85 versus v = .40, a risk _____ will be added to compensate for an increase in V of 0.45.

 

Qualitative and quantitative measures of risk equate the _____ to the perceived risk.

 

A risky investment requires a

 

The efficient frontier represents the upper right most sector of the risk-return trade-off diagram

 

A common stock with a beta of 1 is said to be of

 

Beta is denoted by the symbol

 

The shorter the time horizon, the less        enters the forecast.

 

Given the following information, the expected value is $     .

 

True or false: US government bonds are more risky than investing in a diamond mine in Africa.

 

A beta of 1.08 is said to be of

 

The best risk-return line for a firm is known in the financial literature as the _____.

 

Beta is a measure of

 

Adding a risk premium to compensate for increases in the coefficient of variation is an example of a firm being increasingly ___.

 

In a decision tree, the branches represent the differences between

 

When an investor prefers relative certainty to uncertainty, that person is said to be

 

Whether or not a given investment will change the overall risk of the firm depends on its    .

 

Method(s) for evaluating risk include

 

The larger the coefficient of variation, the greater the ____.

 

To compensate for risk over time, a company will penalize late cash flows by using ___

 

Risk can be significantly reduced when the correlation coefficient is    .

 

Considering the impact of an investment on the overall risk of the firm is known as the

 

Unlike qualitative measures of risk, quantitative measures related the discount rate to the ___.

 

A method of dealing with various economic and financial outcomes using a large number of variables is known as

 

Given the following information, the standard deviation is $ ______. (Round up to the largest whole number)

 

 

Management is choosing between two investment alternatives. Both investments provide the same average return. Investment A has a standard deviation of return of .90% and Investment B has a standard deviation of returns of .70%. Management should choose investment ______.

 

The size difficulty of an investment can be eliminated using the

 

Risk is measured by all of the following except___.

 

The standard deviation is a

 

The expected value is a

 

Given the following information, the coefficient of variation is ____.

 

 

The ability to make accurate forecasts diminishes over ____

 

If Wal-Mart, a multinational retail corporation purchased Meijer, a supercenter chain, the investment would be a(n)

 

Unexpected events over time result in

 

Simulation is a way of dealing with the _____ involved in forecasting the outcomes of capital budgeting projects.

 

The risk-reduction phenomenon of a portfolio is demonstrated when the ____ has been reduced for the entire firm.

 

Risk-adjusted discount rates are used for proposals with different levels or classes of    .

 

Unnecessary or undesirable risk can

 

The evaluation of all possible combinations of projects enables management to determine which will provide the best     .

 

Risk is measured in terms of

 

Risk is defined in terms of the ______ of possible outcomes from a given investment.

 

The coefficient of correlation measures the extent in which projects are     .

 

 

 
 
 
Using the information in the table below and the coefficient of variation, the investment proposal with the greatest amount of risk is investment (A or B)
 
 
 
A firm has a choice between 2 investment proposals. Using the information in the table below which investment will the firm choose?
 
 
 
Investments that are highly correlated
 
 
 
A standard deviation of $100 states how far each outcome falls from the
 
 
 
A proposal that carries a normal amount of risk should use a discount rate equal to
 
 
 
Investments considered to have normal risk will be discounted at
 
 
 
A firm should only select those Investments that provide a risk-return trade-off consistent with its goals because undesirable risks can result in ____.
 
 
 
The primary objective(s) in choosing between various combinations of investments ___.
 
 
 
Investments that are ___ do little or nothing to diversify risk.
 
 
 
Even though the expected value of cash flows for an investment are forecasted to be constant, moving further into the future causes the range of outcomes and probabilities to____
 
 
 
Simulation models are used to test changes in _____.
 
 
 
In a decision tree, the branches represent the difference between
 
 
 
A firm can reduce overall risk exposure by investing in a product or business whose cyclical fluctuations are different from the firm. This risk reduction phenomenon is demonstrated by a ____.
 
 
 
The standard deviation is denoted by the symbol
 
 
 
A simulation model using random variables for inputs is called a
 
 
 
Investing in a 30-day U.S. government obligation has ____ risk?
 
 
 
A correlation coefficient of +.5 indicates that the investments have a correlation that is
 
 
 
Investments that are uncorrelated
 
 
 
Investments that are negatively correlated
 
 
 
 
 
 
 
 
 

 
 
 
True or false: a decision tree is a graphical comparison resembling the branches of a tree.
 
 
 
Risk in terms of capital budgeting is defined as
 

 

1.
The ability to make accurate forecasts diminishes over
 
 
3.
An advantage of the payback method is
 
 
4.
The advantages of using the MIRR
 
 
5.
An alternative method that combines the reinvestment assumptions of the NPV with the IRR is the
 
 
9.
Capital rationing hinders a firm from achieving maximum
 
 
10.
Capital rationing is an
 
 
11.
Characteristics of an investment can be summarized using the
 
 
12.
The coefficient of correlation measures the extent in which projects are
 
 
13.
Considering the impact of an investment on the overall risk of the firm is known as the
 
 
14.
A correlation coefficient of +.5 indicated that the investments have a correlation that is
 
 
15.
Depreciation is added back to accounting flows to provide cash flows because depreciation is
 
 
16.
A disadvantage of the payback method is
 
 
17.
Even though the expected value of cash flows for an investment are forecasted to be constant moving further into the future causes the range of outcomes and probabilities to
 
 
18.
Finance professionals prefer the what method for capital budgeting decision
 
 
19.
A firm can reduce overall risk exposure by investing in a product or business whose cyclical fluctuations are different from the firm. This risk reduction phenomenon is demonstrated by a
 
 
20.
If the firm considers a riskier investment, v=.85 versus v=.40, a risk     will be added to compensate for an increase in V of 0.45.
 
 
21.
If the NPV for an investment is less than zero the firm will
 
 
22.
An important investment characteristic required to apply the net present value profile is
 
 
25.
In a mutually exclusive investment decision the firm will choose the investment that has the highest
 
 
26.
An investment can perform better than another at low discount rates and perform poorly to the other at high discount rate due to the
 
 
27.
Investments considered to have normal risk will be discounted at
 
 
28.
Investments that are highly correlated
 
 
29.
Investments that are what do little or nothing to diversify risk
 
 
30.
In what order are the steps required in the decision making process of a good capital budgeting program
 
 
31.
The IRR is the interest rate that makes NPV
 
 
32.
MACRS classified assets into what categories to determine the allowable rate of depreciation
 
 
33.
Match the capital budgeting method
 
 
34.
A measure of risk that is widely used with portfolios of publicly traded common stock is called
 
 
35.
A method of dealing with various economic and financial outcomes using a large number of variables is known as
 
 
36.
Methods for evaluating risk include
 
 
37.
The need to use external sources of financing for investment projects may lead to what rationing
 
 
38.
The net present profile is a way to what to portray the net present value of a project at different discount rates
 
 
39.
Net present value is the preferred investment selection method because
 
 
40.
Net present value is the sum of the what values of all cash outflows and inflows related to a project
 
 
41.
The payback method fails to consider
 
 
42.
The payback method may be of particular interest to firms in industries characterized by
 
 
43.
The portfolio effect is concerned with the manner in which various investments impact the overall what of a firm
 
 
 
 
 
 
 
 
 
 
 

45.
The primary objectives in choosing between various combinations of investments
 
 
46.
Qualitative and quantitative measures of risk equate the what to the perceived risk
 
 
47.
The reinvestment assumption of the internal rate of return assumes that all inflows can be reinvested at the
 
 
48.
Relatively speaking a lower standard deviation represents
 
 
49.
A replacement decision can involve several additions to the basic investment decision. What are the additions to be considered
 
 
50.
Risk adjusted discount rates are used for proposals with different levels or classes of what
 
 
51.
Risk can be significantly reduced when the correlation coefficient is
 
 
52.
Risk is defined in terms of the what of possible outcomes from a given investment
 
 
53.
Risk is measured in terms of
 
 
54.
Risk is measured in terms of
 
 
55.
The risk reduction phenomenon of a portfolio is demonstrated when the what has been reduced for the entire firm
 
 
56.
simulation is a way of dealing with the what involved in forecasting the outcomes of capital budgeting projects
 
 
57.
Simulation models are used to test changes in
 
 
58.
Simulations is a way of dealing with the what involved in forecasting the outcomes of capital budgeting project
 
 
59.
The size difficulty of an investment can be eliminated using the
 
 
60.
The standard deviation is a
 
 
61.
The standard deviation is denoted by the symbol
 
 
62.
A standard deviation of $100 states how far each outcome falls form the
 
 
63.
To assume that investments with very high IRRs can be reinvested at an equally high rate is
 
 
64.
to compensate for risk over time a company will penalize late cash flows by using
 
 
65.
True or false simulation has the ability to test various possible combinations of events
 
 
66.
Under capital rationing a project will be deemed unacceptable if
 
 
67.
Unexpected events over time create a
 
 
68.
Unlike qualitative measures of risk quantitative measures relate the discount rate to the
 
 
69.
Unnecessary or undesirable risk can
 
 
70.
unnecessary or undesirable risk can lead to
 
 
71.
What are the methods used to evaluate capital expenditures
 
 
72.
What capital budgeting method makes the conservative assumption that each inflow can be reinvested at a discount rate
 
 
 
 
 
 
 
 
 

76.
Which capital budgeting method makes the conservative
 
 
77.
Which conceptually sound methods used to evaluate capital expenditures are acceptable and should be applied to most situations
 
 
78.
Which method used to evaluate capital expenditures is not conceptually sound method
 
 
79.
Which of the following rates are required when applying the net present value profile