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In: Finance

14. According to the class overheads and basic ethics, which one of the following assertions about...

14. According to the class overheads and basic ethics, which one of the following assertions about insider trading, which is against the law, is true?

A. Insider trading is legal and should be considered as a potential approach to investing
B. Insider trading is legal and should not be considered as a potential approach to investing

C. Insider trading is illegal and should be considered as a potential approach to investing
D. Insider trading is illegal and should not be considered as a potential approach to investing

9. The managers of New England Singers have evaluated five potential projects. Each project has conventional cash flows. Based on the information given in this paragraph and presented in the table, which one of the projects is the safest?

Project	Cost of capital (in %)	Net present value (in $ millions)	Payback period (in years)	Discounted payback period (in years)	Internal rate of return (in %)
A	9.5	12.6	2.1	4.3	11.5
B	5.3	2.1	7.2	9.1	6.2
C	7.6	-4.7	1.7	?	7.2
D	6.2	25.8	5.0	9.8	13.4
E	4.9	8.4	5.2	9.4	12.8

A. Project A

B. Project B

C. Project C

D. Project D

E. Project E

New England Singers is considering buying a new, high efficiency sound system. The new system would be purchased today for $86,000. It would be depreciated straight-line to $24,000 over 2 years. In 2 years, the system would be sold and the after-tax cash flow from capital spending in year 2 would be $27,000. The system is expected to reduce costs by $23,000 in year 1 and by $73,000 in year 2. If the tax rate is 50% and the cost of capital is 6.7%, what is the net present value of the new sound system project?

A. $7,377 (plus or minus $100)
B. $8,695 (plus or minus $100)
C. -$15,021 (plus or minus $100)
D. $19,588 (plus or minus $100)

E. None of the above is within $10 of the correct answer

You own a portfolio that has a total value of $37,000. The portfolio has 3,000 shares of stock A, which is priced at $8.00 per share and has an expected return of 9.70%. The portfolio also has 2,000 shares of stock B, which has an expected return of 17.20%. Inflation is expected to be 4.98% and the risk-free return is 3.52%. What is the risk premium for your portfolio?

A. 8.82% (plus or minus 0.05 percentage points)

B. 7.36% (plus or minus 0.05 percentage points)

C. 7.01% (plus or minus 0.05 percentage points)

D. 9.18% (plus or minus 0.05 percentage points)

E. The question cannot be answered without knowing the share price of stock B or the question can be answered without knowing the share price of stock B, but none of the above is within 0.05 percentage points of the correct answer

Expert Solution

Answer:- (D)

According to the class overheads and basic ethics, which one of the following assertions about insider trading, which is against the law, is true?

D. Insider trading is illegal and should not be considered as a potential approach to investing

9. The managers of New England Singers have evaluated five potential projects. Each project has conventional cash flows. Based on the information given in this paragraph and presented in the table, which one of the projects is the safest?

Answer :- (D)

New England Singers is considering buying a new, high efficiency sound system. The new system would be purchased today for $86,000. It would be depreciated straight-line to $24,000 over 2 years. In 2 years, the system would be sold and the after-tax cash flow from capital spending in year 2 would be $27,000. The system is expected to reduce costs by $23,000 in year 1 and by $73,000 in year 2. If the tax rate is 50% and the cost of capital is 6.7%, what is the net present value of the new sound system project?

Answer: (C.) -$15,021 (plus or minus $100)

You own a portfolio that has a total value of $37,000. The portfolio has 3,000 shares of stock A, which is priced at $8.00 per share and has an expected return of 9.70%. The portfolio also has 2,000 shares of stock B, which has an expected return of 17.20%. Inflation is expected to be 4.98% and the risk-free return is 3.52%. What is the risk premium for your portfolio?

Answer:- (A) 8.82% (plus or minus 0.05 percentage points)

jeff jeffy answered 2 years ago

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