Define systematic and unsystematic risk. What method is used to measure a firm's market risk?
What will be an ideal response?
We can divide the total risk (total variability) of our portfolio into two types of risk: 1. company-unique risk, or
unsystematic risk, and 2. market risk, or systematic risk. Company-unique risk might also be called diversifiable risk
in that it can be diversified away. Market risk is nondiversifiable risk; it cannot be eliminated through random
diversification. Events that affect our portfolio now are not so much unique events as changes in the general economy,
major political events, and societal changes. Examples include changes in interest rates, changes in tax legislation that
affect all companies, or increasing public concern about the effect of business practices on the environment. Our
measure of risk should, therefore, measure how responsive a stock or portfolio is to changes in a market portfolio, such
as the New York Stock Exchange or the S&P 500 Index. Beta (B) in investor jargon, and it measures the average
relationship between a stock's returns and the market's returns.
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Cost-based pricing strategies result in a percentage being added to the cost of the product.
Answer the following statement true (T) or false (F)
There are potential benefits and risks from raising capital on global markets. Discuss the pros and cons in terms of risk of raising capital on global markets
What will be an ideal response?
Four years ago Alpha Products, Inc. acquired a computer-controlled milling machine to use in its medical device manufacturing operations at a cost of $5,000,000. The firm expected the machine to have an eight-year useful life and zero salvage value. The company has been using straight-line depreciation for the asset. Due to the rapid rate of technological change in the industry, at the end of Year 5, Alpha estimates that the machine is capable of generating (undiscounted) future cash flows of $1,500,000. Based on the quoted market prices of similar assets, Alpha estimates the machine to have a fair value of $1,200,000. Required:
What is the book value of the machine at the end of Year 5? Should Alpha recognize an impairment of this asset? Why or why not? If yes, what is the amount of the impairment loss that should be recognized? At the end of Year 5, at what amount should the machine appear in Alpha's balance sheet? What would your answer to requirement (b.) have been if Alpha's estimate of the machine's (undiscounted) future cash flows was $2,000,000? What will be an ideal response?
The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain
a. True b. False Indicate whether the statement is true or false