Questions from Corporate Finance

Q: A broker has advised you not to invest in oil industry stocks

A broker has advised you not to invest in oil industry stocks because they have high standard deviations. Is the broker’s advice sound for a risk-averse investor like yourself? Why or why not?

Q: Consider the following information: / a.

Consider the following information: a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? b. What is the variance of this portf...

Q: How do you determine the appropriate cost of debt for a company

How do you determine the appropriate cost of debt for a company? Does it make a difference if the company’s debt is privately placed as opposed to being publicly traded? How would you estimate the cos...

Q: What is data mining? Why might it overstate the relation between

What is data mining? Why might it overstate the relation between some stock attribute and returns?

Q: Assume that the following market model adequately describes the return generating behavior

Assume that the following market model adequately describes the return generating behavior of risky assets: R it = α i + β i R M t + € it Here: R it = The re...

Q: Consider a levered firm’s projects that have similar risks to the firm

Consider a levered firm’s projects that have similar risks to the firm as a whole. Is the discount rate for the projects higher or lower than the rate computed using the security market line? Why?

Q: Filer Manufacturing has 8.3 million shares of common stock outstanding

Filer Manufacturing has 8.3 million shares of common stock outstanding. The current share price is $53, and the book value per share is $4. Filer Manufacturing also has two bond issues outstanding. Th...

Q: Given the following information for Huntington Power Co., find the WACC

Given the following information for Huntington Power Co., find the WACC. Assume the company’s tax rate is 35 percent. Debt: 5,000 6 percent coupon bonds outstanding, $1,000 par value, 25 years to ma...

Q: Several celebrated investors and stock pickers frequently mentioned in the financial press

Several celebrated investors and stock pickers frequently mentioned in the financial press have recorded huge returns on their investments over the past two decades. Does the success of these particul...

Q: What is the difference between arithmetic and geometric returns? Suppose you

What is the difference between arithmetic and geometric returns? Suppose you have invested in a stock for the last 10 years. Which number is more important to you, the arithmetic or geometric return?...