Questions from Financial Management

Q: If dividends paid to common stock holders are not legal obligations of

If dividends paid to common stock holders are not legal obligations of a corporation, is the cost of equity zero? Explain your answer.

Q: What is the investment opportunity schedule (IOS)? How does it

What is the investment opportunity schedule (IOS)? How does it help financial managers make business decisions?

Q: What is a marginal cost of capital schedule (MCC)? Is

What is a marginal cost of capital schedule (MCC)? Is the schedule always a horizontal line? Explain.

Q: Provide three examples of mutually exclusive projects.

Provide three examples of mutually exclusive projects.

Q: What is capital rationing? Should a firm practice capital rationing?

What is capital rationing? Should a firm practice capital rationing? Why?

Q: Explain why accounting profits and cash flows are not the same thing

Explain why accounting profits and cash flows are not the same thing.

Q: Explain how to resolve a “ranking conflict” between the net

Explain how to resolve a “ranking conflict” between the net present value and the internal rate of return. Why should the conflict be resolved as you explained?

Q: Why is the coefficient of variation a better risk measure to use

Why is the coefficient of variation a better risk measure to use than the standard deviation when evaluating the risk of capital budgeting projects?

Q: Explain how using a risk-adjusted discount rate improves capital budgeting

Explain how using a risk-adjusted discount rate improves capital budgeting decision making compared to using a single discount rate for all projects?

Q: How do we calculate the payback period for a proposed capital budgeting

How do we calculate the payback period for a proposed capital budgeting project? What are the main criticisms of the payback method?