1) If you plotted the returns on a given stock against those of the market, and if you
found that the slope of the regression line was negative, the CAPM would indicate that
the required rate of return on the stock should be greater than the risk-free rate for a
well-diversified investor, assuming that the observed relationship is expected to
continue into the future.
2) A firm’s collection policy, i.e., the procedures it follows to collect accounts
receivable, plays an important role in keeping its average collection period short,
although too strict a collection policy can reduce profits due to lost sales.
3) Conflicts between two mutually exclusive projects occasionally occur, where the
NPV method ranks one project higher but the IRR method ranks the other one first. In
theory, such conflicts should be resolved in favor of the project with the higher positive
NPV.
4) Determining a firm’s optimal investment in working capital and deciding how that
investment should be financed are critical to working capital management.
5) When the value of the U.S. dollar appreciates against another country’s currency, we
may purchase more of the foreign currency with a dollar.
6) Cash is often referred to as a “non-earning” asset. Thus, one goal of cash
management is to minimize the amount of cash necessary for conducting a firm’s
normal business activities.
7) If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a
corporation was allowed as a tax-deductible expense, this would probably encourage
companies to use more debt financing than they presently do, other things held
constant.
8) The current cash flow from existing assets is highly relevant to the investor.
However, since the value of the firm depends primarily upon its growth opportunities,
profit projections from those opportunities are the only relevant future flows with which
investors are concerned.
9) The cost of capital may be different for a foreign project than for an equivalent
domestic project because foreign projects may be more or less risky.